Understanding the crisis gripping NBFCs

The past year or so hasn’t been good for most of the NBFCs. Ever since the IL&FS bust up, NBFCs have been lurching from one crisis to another. The IL&FS default froze the debt markets and liquidity dried up. NBFCs which depend on short term credit to rollover their commercial paper issues to keep the asset liability mismatch in check have had a harrowing time. Borrowing costs for NBFCs shot up and in some cases the borrowing dried up completely.

NBFCs have had to resort to stake sales, mergers, bank borrowings and retail bond issuance to obtain funding. In the past couple of months we have the seen the concern around NBFCS flare up again with the rating downgrades with DHFL and RHFL.

In the next 3 months, about Rs 1.3 lakh crores of borrwings by NBFC from mutual funds is due for repayment. Although, this in itself is not a big deal usually, this time around it is a concern given that many of these NBFcs are in bad shape.

In this conversation, Ashish Gupta, MD & Head of Research at Credit Suisse gives a low down on this whole situation