Active Stocks
Fri May 24 2024 15:59:27
  1. Tata Steel share price
  2. 174.80 -0.37%
  1. NTPC share price
  2. 374.85 0.68%
  1. State Bank Of India share price
  2. 828.60 -0.45%
  1. ITC share price
  2. 436.10 -1.16%
  1. Power Grid Corporation Of India share price
  2. 318.50 -0.39%
Business News/ Market / Stock-market-news/  NBFCs face big test as 1.2 lakh crore repayment comes due
BackBack

NBFCs face big test as ₹1.2 lakh crore repayment comes due

NBFCs must repay about ₹1.2 trillion ($16.3 billion) of commercial paper in October-December

Money-market mutual funds suffered the worst withdrawals since at least April 2007 last month. Photo: BloombergPremium
Money-market mutual funds suffered the worst withdrawals since at least April 2007 last month. Photo: Bloomberg

Mumbai: India’s non-bank financial companies or NBFCs have had a tough few months amid the fallout from defaults by one of their own, conglomerate IL&FS group. The next few months also present a challenge to the NBFCs, which rely heavily on debt issued to the nation’s money market funds for short-term financing. The financiers must repay about 1.2 trillion ($16.3 billion) of commercial paper in October-December, near a record 1.46 trillion in August-October, according to data from Securities and Exchange Board of India.

The timing isn’t ideal. Indian money-market funds popular over lower-yielding savings accounts suffered the worst withdrawals since at least April 2007 last month, after the IL&FS defaults spooked the market. And generally, financing costs throughout India’s credit markets have ticked higher, meaning that rolling over all this debt will cost more.

The non-bank financial companies may be forced to turn to un-utilized bank facilities to pay down some of the maturing CP debt, according to A.M. Karthik, sector head financial sector ratings at ICRA. A crucial thing to watch is whether banks will allow the NBFCs to make timely draw downs on these facilities, as the mutual funds are facing pressure, he said.

View Full Image

There have at least been some encouraging signs of support from policy makers. Reserve Bank of India eased rules last week to help the non-bank lenders access loans more easily.

The support came after Moody’s Investors Service flagged risks to credit profiles of non-banking financial institutions due to prolonged liquidity distress triggered by defaults at IL&FS Group.

You are on Mint! India's #1 news destination (Source: Press Gazette). To learn more about our business coverage and market insights Click Here!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 23 Oct 2018, 01:48 PM IST
Next Story footLogo
Recommended For You