Business Today

Shadow Banking Woes

Default on payments has put NBFCs under scrutiny and exposed the fault lines in the commercial papers they have issued

Multiple loan defaults by IL&FS and the subsequent panic around commercial papers (CPs) has put the spotlight on non banking financial companies (NBFCs), India's shadow banking space. To gain market share, NBFCs increasingly issued CPs a short term debt instrument to finance long term projects at a time when credit growth in banks slowed. The overall value of outstanding CPs (the interest bearing balance of a loan) was Rs 6.4 lakh crore as of July end; 96 per cent growth since July last year. Mutual funds and banks bought such CPs owing to NBFCs having shown better loan growth and stronger net interest margins than banks. But the golden phase did not last long.

IL&FS defaulting on debt payments and fund house DSP selling DHFL

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