Dewan Housing Finance Corp. Ltd’s second quarter (Q2) numbers reflected the liquidity concerns that had gripped non-banking financial companies (NBFCs) in September.

The housing finance company reported 39% year-on-year growth in disbursals for the September quarter, a far cry from the 65% growth in the three months ended 30 June. Indeed, disbursals hardly grew sequentially, which goes to say that the credit crunch had the company battening down its hatches.

Dewan Housing was no exception to the liquidity crisis. In fact, a transaction involving the company’s bonds was the trigger for that vortex of meltdown in the second half of September. Dewan Housing’s bonds were sold at a yield that defied the trust investors had placed on the AAA-rated papers, which led to heavy selling in its shares and effectively got it shunted out of the market for commercial paper.

The company since then has managed to refinance its borrowings, but hasn’t been able to get back that trust even though it remains AAA-rated. Ergo, the cost of borrowing has gone up by as much as 100 basis points. A basis point is one-hundredth of a percentage point.

Dewan Housing raised funds through 10-year debentures earlier this month at 9.92%, far higher than the 9% it had paid for a similar borrowing in April. It was able to raise 575 crore through commercial papers, again at higher rates. Recall that commercial papers were the pain point of the spreading mistrust towards NBFCs because of the worries over liquidity.

Hence, the sequential drop of 29 basis points in the margins should not surprise. In fact, margins are likely to get worse going forward, since the Q2 results only reflect the impact on the financing front, in the last few days of the quarter.

Considering the pressure on its liabilities, Dewan Housing had to prune its asset side to generate liquidity. The company has sold 7,400 crore worth of loans to banks to get cash for paying off debt. It has paid off close to 13,927 crore worth of debt since September.

Analysts believe that the overhang of liquidity crunch will be felt for the next two quarters with an increase in borrowing costs. While the management has sounded confident over its growth prospects, investors are yet to be convinced that Dewan Housing would deliver the growth rates of previous quarters.

The distrust was visible as the Dewan Housing stock lost 1.5% on the National Stock Exchange on Thursday and is down a massive 60% so far this year.

The erosion in valuation has resulted in the stock trading at a discount to its estimated book value for FY19.