IL&FS crisis may become the reason behind license cancellation of 1500 non-banking financial institutions (NBFC)
The credit and liquidity risk hovering over the market from past the week have forced regulators to consider cancelling license as an option. Owing to insufficient capital, the new applicant might find it difficult to enter the market, reported TOI.
Apparently, The Reserve Bank of India did not quote anything on this matter.
Infrastructure Financing and Leading Services Ltd crashed the NBFC sector when it posted some of its debt obligations. The company has been trading in red since making investors lose ₹45000 crores of their wealth. The NBFCs have been facing issues while raising money after the IL&FS crisis.
Earlier today, IL&FS reported fresh debt obligation of ₹395.4 crore that could not be serviced.
Reportedly, NBFCs along with IL&FS have traded in green from along time prior to the crisis. Analysts acknowledged their loan book growing twice the speed of the banks in India. Moreover, the had top credit ratings.
IL&FS’s financial struggle has put its credit rating in doubt. Investors are likely to stay away from NBFC. Moreover, it is believed that the company took credit risk by lending people money without considering their repayment options in return.
An NBFC owner quoted that they will hardly be able to survive without any credit infusion in the market. The bearish trend has led RBI to tighten the rules. The apex bank has already taken it’s move by cancelling the license of NBFC with the capital base less than ₹2 crores.