Home >Market >Stock-market-news >NBFCs face big test as 1.2 lakh crore repayment comes due

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.

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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.

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