Participants in the real estate market might soon begin to default on their repayments, due to the liquidity crunch in the NBFC (Non-Banking Finance Company) market, as reported by Business Standard.
“With limited incremental funding to the sector from banks, which grew at just two per cent in fiscal 2018, NBFCs and HFCs came to the developers’ rescue. However, given the current pressure on liquidity for NBFCs, a potential cascading effect on select projects and developers, could make access to funding more difficult for them,” said a recently released report by a credit rating firm, CRISIL.
The current liquidity crisis in the NBFC market can be traced back to the September 2018 default of IL&FS, a NBFC giant operating in the infrastructure finance space.
“Refinancing of loans has stopped due to NBFC crisis. It will push developers to default mode. Whenever a loan was getting defaulted, it used to be swapped by another NBFC. Now it will stop,” stated Sandeep Runwal, director at Mumbai based Runwal group.
Realising this precarious situation in the market, the government had asked the RBI (Reserve Bank of India (RBI) to open a special liquidity window for NBFCs. However, squashing government’s hopes, RBI has noted, “Our assessment shows there is no such necessity at present, given the sound health of the economy. We are at the level of aggregate credit growth, which is comfortably in excess of nominal GDP growth.”
Also Read: Can NBFCs Be Nursed Back To Health?