Funding crunch for NBFCs likely to linger on


Funding of NBFCs from commercial banks increased significantly upon the Infrastructure Leasing & Financial Services (IL&FS) distress event and remains substantial, helped by Reserve Bank of India Policies. However, data on mutual fund holdings of shadow bank commercial paper suggests funding pressure continue to exist according to the Institute of International Finance. Mutual funds are steadily reducing their exposure to shadow banks. Nonresident portfolio flows to shadow banks, a useful sentiment indicator, dipped late last year but staged a recovery in recent months, despite broadly weak capital flows to emerging markets. However, the weight of shadow-bank debt in Indian portfolios of non-resident investors remains below mid-2018 levels, suggesting markets still take a somewhat cautious approach to shadow banks, said Reza Siregar, Head of ASEAN & India Research at the IIF. Analysts say the failure of leading NBFCs could have a domino effect of on the financial markets and the economy, starting with banks, financial institutions and mutual funds losing money while, businesses, especially small and medium enterprises finding it difficult to raise money as NBFCs retrench lending. — VoM

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