What led to the crisis?

 Many NBFCs rely on short-term borrowing to finance long-term lending, which puts
them in a difficult spot when there is a liquidity crunch. As liquidity crisis unfolded in
India’s shadow banking sector beginning September, mutual funds that had lent heavily
to these companies till then raced to cut their risk. This led to major NBFC like IL&FS,
DHFL facing crisis.

 Along with this In September 2018, after the IL&FS crisis emerged, DHFL’s stock also
took a hammering, by as much as 60%

The crisis led to many downfalls for DHFL:

• DHFL has faced a series of downgrades by rating agencies.

• Delayed interest payment on its bonds and bond repayments worth Rs 960 crore due on
June 4

Current Situation: There is a significant loss for investors, debt and the ability to raise funds
impaired

According to me the DHFL in-order to overcome from the crisis or identify the crisis in the
future they should follow these things strictly.

 There is a stricter need for regulation by the regulating authorities like the RBI and the
national housing board.
 If we consider the case of IL&FS crisis, how it impacted the entire NBFC crisis and
how it provided for liquidity crisis in the entire sector. This is a very good example by
which regulators should have taken precautions, but there were no precautionary
measures taken, so same crisis is happened to DHFL as well . So, the regulating
authorities should be more precautious and take measure.
 Detailed resolution framework should be provided for those companies which are not
included in IBC (Insolvency and bankruptcy code). For those companies which are not
included in IBC, detailed resolution framework needs to be provided. Although it was
proposed in FRDI Bill, but it was not adopted.
 The authorities who are responsible for supervision should also undertake the role of
supervision very seriously in-order to identify the crisis beginning and to take corrective
actions.

Finance Perspective:

 If this is indeed a solvency issue, if the company’s survival itself is uncertain, it could
be a huge blow to India’s financial markets. This will lead to further panic – and
tighter liquidity – across the system.
 If the company fails, that will affect all of those that have extended credit to the
company. That includes about Rs 50,000 crore from banks, another Rs 30,000 crore
from the Life Insurance Corporation, pension funds and more.
 Its not just about one company failing, it’s a danger to the already under siege banking
system.