NEW DELHI: The Central government is concerned that the crisis in Non-Banking Financial Companies (NBFC) may deepen, as several NBFCs have expressed their inability to honour commercial papers, citing lack of liquidity. Commercial papers to the tune of Rs 1.25 lakh crore will come up for redemption in the next three months.
“The NBFC liquidity crisis has not gone completely; liquidity still remains a problem. At least four companies have expressed their inability to honour commercial papers. Commercial papers worth Rs 1.25 lakh crore will be up for redemption in the next two-three months. This is worrisome. They have requested liquidity infusion into the system to avert the crisis,” a senior official from the Ministry of Corporate Affairs (MCA) told TMS.
Commercial Papers (CP) are debt instruments issued by companies to raise funds for a period of up to one year.
According to the MCA official, the ministry is already in talks with various shareholders, including Securities and Exchange Board of India, Ministry of Finance and NBFCs to chalk out a solution in the matter.
According to Reserve Bank of India, there were 10,190 NBFCs operating as of September 2018, and their outstanding loans amounted to about Rs 20 lakh crore ($285 billion). Industry watchers feel that this might have a cascading effect on all the sectors.
Even though the mutual funds are now steering clear of NBFCs, they already hold $46 billion debt issued by NBFCs.
This current concern was also flagged by MCA secretary Injeti Srinivas during an interview last week. “There is credit squeeze, over-leveraging, excessive concentration and massive mismatch between assets and liabilities, coupled with misadventures by some very large entities, which is a perfect recipe for disaster,” Srinivas had said then.
Meanwhile, the market sentiment has taken a beating over the crisis. Credit rating agencies have downgraded Reliance Capital-owned Reliance Commercial Finance and Reliance Home Finance to “default”.
They have downgraded Dewan Housing Finance (DHFL) as well and kept PNB Housing Finance on credit watch.