Despite fundamental differences in the NBFC universe, all NBFCs are today facing the brunt of a liquidity squeeze
Events revolving around the multi-notch downgrade of Infrastructure Leasing and Financial Services (IL&FS) last month have caused a liquidity squeeze for the entire non-banking financial company (NBFC) sector. What started as a debt default by a single NBFC has almost turned into a funding crisis for all. Risk aversion in debt markets has heightened to an extent that the market has lost its ability to make a distinction across NBFCs, bracketing all of them in the same risk category, irrespective of the underlying nature of their assets and liabilities. The reality is that the sector is very heterogeneous and constitutes different types of companies with different business models addressing very different underlying borrower segments. This nuance needs to be seen, understood and acknowledged for markets to resume normalcy.