India's Lehman has arrived

https://www.businesstoday.in/bt-buz...ubble----bursting-in-phases/story/341923.html

Liquidity woes to worsen

The problems with the NBFC sector began in September last year when the infrastructure finance company IL&FS defaulted on payments to banks, term deposits and failed to meet the commercial paper redemption obligations. It caused panic in the markets as it impacted banks, MFs as well as investors.

Since then, the source of funding for NBFCs has been drying up and they are finding it increasingly difficult to service repayment obligations.

The downgrading of Anil Ambani group companies follows redemption delay by two fund houses -- Kotak Mahindra Asset Management and HDFC Mutual Fund - in April this year. The two MFs said they will not be able to redeem all their units due to delay in recovering money lent to the Subhash Chandra-led Essel Group companies.

"Now, there will be a certain set of companies, which will just not get lending due to their weak balance sheets. Asset quality consciousness is coming now and fund managers are no more chasing only numbers. So availability of liquidity will go down," says Jharna Agarwal, Head - Products, Preferred Business, at Anand Rathi.

Liquidity will be impacted more than the cost of funding because if a lender does not find a company making it to the cut, they will just not lend now. "No amount of interest rate will be enough for lending in such cases," she adds.
 
https://www.timesnownews.com/busine...i-set-to-act-decisively-on-mf-defaults/411250

New Delhi: Market regulator SEBI could soon step into the current Debt Mutual Fund crisis, after Kotak AMC and HDFC AMC rolled over its Fixed Maturity Plans (FMP) putting at risk money of investors. Sources tell ET Now that SEBI could unveil fresh directives after elections to reign in Mutual Funds acting like banks.

“Mutual Ones are not banks. They do not have capital adequacy ratio like banks, neither do they have the adequate expertise to evaluate risks, so why should investors money be at stake”, said a SEBI official in the know of the development.
 
https://economictimes.indiatimes.co...to-save-last-bastion/articleshow/69156270.cms

Reliance Capital Ltd., his financial services business that almost doubled its profit in five years, had largely remained insulated from the distress plaguing the wider conglomerate. Now, the company that controls India’s fifth-biggest mutual fund, is racing to close a planned $2 billion of asset sales to bolster its finances after cash dwindled to 110 million rupees ($1.6 million) as of March, according to CARE Ratings.

With $252 million of debt falling due over May and June, a unit of Moody’s Investors Service and two other local firms have slashed ratings of Reliance Capital or its short-term instruments, citing holdups in asset sales, deteriorating liquidity and risks on loans to unprofitable affiliates. The downgrades came against the backdrop of soaring finance costs for an industry shaken by last year’s meltdown at one of the nation’s biggest shadow lenders that’s unrelated to Reliance Capital.

Asset disposals are key to averting a crisis at Reliance Capital, said Mathew Antony, a managing partner at Mumbai-based Aditya Consulting, a credit advisory firm. “Unless some strategic infusion of long-term equity comes into the company, the day when Reliance Capital falls into a liquidity crisis isn’t too far,” he said.
 
https://www.bloomberg.com/news/arti...ia-pumps-in-cash-kotak-says?srnd=fixed-income

India needs to pump more cash into its financial system to prevent a worsening of the funding crisis among shadow banks and the corporate sector, according to one of the nation’s biggest money managers.

Non-banking financial companies had served as a “surrogate womb” for banks, who face regulatory limits on how much they can lend, but that “surrogacy has stopped,’’ Lakshmi Iyer, chief investment officer for debt at Kotak Mahindra Asset Management Co., said in an interview at her office in Mumbai. “If the liquidity the system requires is not provided sooner or later, this could morph itself into something beyond NBFCs.’’

The non-bank lenders, which have been hit by high borrowing costs and largely shut out from the bond market after the crisis at shadow lender IL&FS Group broke out last year, are facing the risk that more borrowers will be unable to repay their debt as the cash crunch drags on. Oil industry firms, steel producers and mineral companies, all of which rely on NBFCs for funding, are finding it difficult to raise money, Iyer said.

There were 10,190 NBFCs operating as of September 2018, and their outstanding loans came to about 20 trillion rupees ($285 billion), according to the Reserve Bank of India. That’s around a fifth of the balance sheet of all the nation’s banks.
 
https://www.bloomberg.com/news/arti...lection-gets-an-economy-riddled-with-problems

https://economictimes.indiatimes.co...hing-working-capital/articleshow/69394781.cms

TransUnion CIBIL, a credit registry, put the size of India’s loans-against-property market at the end of last year at Rs 3,84,000 crore ($55 billion). However, growth in origination of new loans, in money terms, crashed from 54% in the final quarter of 2017 to 11% in the three months through September, when IL&FS blew up. It may have fallen further since then. Slower origination means even more defaults in future because stressed borrowers won’t get refinancing so easily.

And borrowers are stressed. Car and SUV sales in India had their worst slump in almost eight years in April. Even soap and biscuit makers are struggling to eke out volumes. These are big, publicly traded companies, whose first response in tough times is to shorten their own working capital cycle by lengthening it for their suppliers – the smaller firms. The response of a government that’s desperate to boost its tax kitty will also be to delay refunds to firms in the supply chain.

A $55 billion source of working capital slipping out of the reach of small firms will trigger a chain reaction. Investors aren’t prepared for it. As India watchers wait for May 23 to see who gets elected as the next prime minister, probably the bigger question is what comes next for finance. Someone will have to fix this broken engine, and quickly.
 
https://scroll.in/article/923785/nb...-to-defuse-the-ticking-time-bomb-in-its-hands

At the heart of the ticking time bomb that is India’s financial market lies its shadow banking sector.

If the financial condition of these non-bank lenders deteriorates, it will spark an economic meltdown. However, the government and the banking regulator, which are keenly watching the situation, won’t let that happen, believe experts.

“There is an imminent crisis in the non-banking financial companies sector,” Injeti Srinivas, corporate affairs secretary told the Press Trust of India in an interview on May 12. “There is a credit squeeze, over-leveraging, excessive concentration, and massive mismatch between assets and liabilities, coupled with some misadventures by some very large entities, which is a perfect recipe for disaster.”

The first signs of this crisis were visible in the second half of 2018 when the Mumbai-based Infrastructure Leasing & Financial Services, a three-decade old lending giant, which claims to have helped finance projects worth $25 billion (Rs1.75 lakh crore) across the country, ran out of money. The situation became so dire that it was even compared to the 2008 Lehman Brothers crisis. The government had to step in and supersede the board to avert a blow up.

Since then, though, the cracks in the system have only become wider.
 
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