Finance Minister Arun Jaitley has assured that the government will take all measures to ensure adequate liquidity for non-banking financial companies (NBFCs) and mutual funds. This move is aimed at inspiring confidence and reducing the uncertainty caused by the ongoing debt crisis in the IL&FS group.
Jaitley’s assurance comes after the shares of housing finance companies came under sudden heavy selling pressure on Friday amid crisis at the Infrastructure Leasing and Financial Services Ltd (IL&FS).
“The Government will take all measures to ensure that adequate liquidity is maintained/provided to the NBFCs, the mutual funds and the SMEs,” the Finance Minister tweeted.
In this regard, both the Reserve Bank of India (RBI) and markets regulator Securities and Exchange Board of India (Sebi) said on Sunday that they were closely monitoring developments in the financial sector and were ready to take appropriate action if required.
Also on Sunday, the country’s largest lender — state-run State Bank of India (SBI) –asked NBFCs not to worry about credit availability as it would continue to support them.
“Some comments are being attributed to the SBI about it being wary of lending to the NBFCs. The rumours are baseless. The SBI lends support to the NBFCs in private and public sectors within the regulatory policy framework and will continue to do so,” SBI Chairman Rajnish Kumar said in a statement.
On the other hand, the recent RBI guidelines on the co-lending model opens up more opportunities for collaboration between the SBI and non-deposit taking NBFCs to increase lending to priority sectors, he added.
The markets, however, failed to be reassured by these statements. The BSE Sensex lost nearly 600 points during the mid-afternoon session on Monday, with heavy selling activity in banking, finance and auto stocks. Similarly, the NSE Nifty50 also was down over 180 points.
According to experts, the recent fall in NBFC stocks is the result of a tightening in the money market and a lack of clarity on IL&FS debt crisis.
Dewan Housing Finance Corporation (DHFC) stocks led the sudden fall on Friday, losing half its share price within a few hours during the afternoon session of the trade.
It closed at Rs 351.55 on BSE, lower by 259.05 — or 42.43 per cent — from its previous close of Rs 610.60 per share.
Rating agency ICRA on Monday downgraded the ratings of IL&FS for short- and long-term borrowing programmes.
The downgrade came after the company was unable to meet the commercial paper redemption obligations due on September 14, 2018.
The next day, the company reported that it had received notices for delays and defaults in servicing some of the inter-corporate deposits accepted by it.