Shadow bank risk roars back with DHFL liquidity crunch

By Divya Patil

Little did anyone know a year back that it would get this bad with missed debt deadlines in Indias credit markets.

But twelve months after infrastructure financier IL&FS Group defaulted for the first time in June last year, investor confidence has again been shaken this week by signs that the crisis is spreading among shadow banks. Stock investors to policy makers are taking notice, given the importance of the non-bank financing companies to the nations economy.

Among the worst hit in the wake of the IL&FS shock, which pushed up financing costs and made it harder for non-bank financing companies to access the bond market, is major mortgage lender Dewan Housing Finance Corp. The firms short-term credit rating was cut to default by Crisil, the Indian unit of S&P, on Wednesday. Its shares plunged 11.5 per cent on Thursday.

The pain in the shadow banking sector poses a challenge for Indian economic growth that has already slowed to a five-year low. Steps to manage the liquidity crisis will be crucial during Narendra Modis second term as prime minister. Nerves have already been rattled by defaults at Jet Airways India Ltd. and debt concerns at conglomerate Essel Group.

Crisil cited delays in debt servicing payments at Dewan Housing that were due on June 4 on some non-convertible debentures because of inadequate liquidity. The company has been on a spree to sell its assets including a mutual fund and education loan company.

That echoes moves at Indian tycoon Anil Ambanis Reliance Capital Ltd., yet another compRead More – Source