{"id":6279,"date":"2019-09-16T18:51:24","date_gmt":"2019-09-16T13:21:24","guid":{"rendered":"https:\/\/swaritadvisors.com\/learning\/?p=6279"},"modified":"2021-04-05T15:02:52","modified_gmt":"2021-04-05T09:32:52","slug":"impact-of-nbfc-crisis-on-indian-economy-its-aftermaths","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/learning\/impact-of-nbfc-crisis-on-indian-economy-its-aftermaths\/","title":{"rendered":"Impact of NBFC Crisis on Indian Economy &#038; its Aftermaths"},"content":{"rendered":"\n<p>In the last few months, the NBFC Crisis on Indian Economy has gathered much limelight. Especially, small NBFCs are struggling hard with asset-liability disparity amidst several corporate governance issues. <\/p>\n\n\n\n<p>Although the present liquidity crisis in the NBFC sector may not constitute any systematic risk, investors are seemed to be more worried. According to some market participants, there would be a potential impact of the crisis on the overall economic growth.<\/p>\n\n\n\n<p>According to the Economic Survey, just after the crisis of IL&amp;FS, mutual funds and banks stopped refinancing the NBFCs\u2019 loans. As a result, they faced a severe liquidity crunch. Hence, it is expected to continue to impact the economic growth in the present financial year too. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a54bf60bdf1d\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a54bf60bdf1d\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/learning\/impact-of-nbfc-crisis-on-indian-economy-its-aftermaths\/#Meaning_of_NBFC_Crisis\" title=\"Meaning of NBFC Crisis\">Meaning of NBFC Crisis<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/learning\/impact-of-nbfc-crisis-on-indian-economy-its-aftermaths\/#A_Few_reasons_that_caused_NBFC_Crisis_on_Indian_Economy\" title=\"A Few reasons that caused NBFC Crisis on Indian Economy\">A Few reasons that caused NBFC Crisis on Indian Economy<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/learning\/impact-of-nbfc-crisis-on-indian-economy-its-aftermaths\/#Is_NBFC_Crisis_a_matter_of_extreme_concern\" title=\"Is NBFC Crisis a matter of extreme concern?\">Is NBFC Crisis a matter of extreme concern?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/learning\/impact-of-nbfc-crisis-on-indian-economy-its-aftermaths\/#After_the_consequences_of_the_Crisis\" title=\"After the consequences of the Crisis \">After the consequences of the Crisis <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/learning\/impact-of-nbfc-crisis-on-indian-economy-its-aftermaths\/#What_could_be_the_possible_outcomes_of_the_Crisis_in_the_upcoming_months\" title=\"What could be the possible outcomes of the Crisis in the upcoming months?\">What could be the possible outcomes of the Crisis in the upcoming months?<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Meaning_of_NBFC_Crisis\"><\/span>Meaning of NBFC Crisis<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>NBFC crisis is the condition where <strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\">NBFCs<\/a><\/strong> are facing a liquidity crunch. Banks and Mutual Funds have stopped lending to them after the IL&amp;FS crisis. In a nutshell, most of the NBFCs (especially those of smaller ones) aren\u2019t left with much money to lend to investors and others. <\/p>\n\n\n\n<p>Rather banks want assurance from the NBFC Crisis on Indian Economy for higher returns on the loans they receive from them. The crush at the NBFC ends the subsequently higher interest rates may pose a risk on the construction sector, jewellery firms, auto, and consumption in FMCG (Fast Moving Consumer Goods). <\/p>\n\n\n\n<p>In the fourth quarter of the financial year 2019,\na few FMCG firms have confirmed weak volume growth. Moreover, there has been a\ndownfall of Maruti Suzuki\u2019s car sale to 18.7% year-on-year. <\/p>\n\n\n\n<p>According to some surveys, there has been some improvement in the flow of credit from banks. But the deployment of funds by mutual funds to the NBFC sector went negative and stayed at around 12% in April 2019. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"A_Few_reasons_that_caused_NBFC_Crisis_on_Indian_Economy\"><\/span>A Few reasons that caused NBFC Crisis on Indian Economy<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There are several reasons why NBFCs are struggling and suffering from a liquidity crisis. A few of the reasons are given below: <\/p>\n\n\n\n<ul><li>While lending to builders or developers for long-term projects, Non-Banking Financial Companies had borrowed short-term from mutual funds and banks which got stuck due to several reasons.<\/li><li>Furthermore, NBFCs lent to developers who were deceitful and to wilful corporate defaulters who were indulged in round-tripping of funds as well as ever-greening of loans. <\/li><li>The cash flow of the companies dried up. As a result, NBFCs weren\u2019t able to repay their lenders. &nbsp;<\/li><li>One of the reasons for crisis stands true while, in September, IL&amp;FS couldn\u2019t encounter its commercial paper redemption obligations. <\/li><\/ul>\n\n\n\n<p>However, a government panel has been appointed to\nwork on the same. The panel will work on recovering the money by trading assets\nof the group. But, this won\u2019t be that easy. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Is_NBFC_Crisis_a_matter_of_extreme_concern\"><\/span>Is NBFC Crisis a matter of extreme concern?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Honestly, you don\u2019t need to panic. However, it\u2019s\nreally a matter of concern and one must be watchful for the same. <\/p>\n\n\n\n<p>Debt schemes of various mutual funds have estimated their net asset values erode. Thus, we suggest you hire an investment adviser to guide you regarding the same. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"After_the_consequences_of_the_Crisis\"><\/span>After the consequences of the Crisis <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>According to sources, trillions of Indian rupees\nare sealed for the completion of projects such as construction, real estate,\nand infrastructure. <\/p>\n\n\n\n<p>However, the promoters or developer who had\nassured the shares of their firms for borrowing money, are in a critical\nsituation. <\/p>\n\n\n\n<p>Neither they are able to borrow money for the\ncompletion of projects nor are they in the condition to sell them to others.<\/p>\n\n\n\n<p>Gradually, the investors are getting into \u201cstandstill\nagreements\u201d with mutual funds and banks. <\/p>\n\n\n\n<p>The reason for the same is to ensure those shares\naren\u2019t sold and they continue to operate the firm. <\/p>\n\n\n\n<p>However, there isn\u2019t any assurance that the\ninvestors and lenders will not end up poorer as they don\u2019t have any control\nover the fluctuation of prices of such shares. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_could_be_the_possible_outcomes_of_the_Crisis_in_the_upcoming_months\"><\/span>What could be the possible outcomes of the Crisis in the upcoming months?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In the past few months, the Central Bank has\ndriven a massive amount of liquidity into the system. Furthermore, it has\nsimplified some of its norms to provide NBFCs with more room for fundraising. <\/p>\n\n\n\n<p>However, there are some market leaders who\ncontinue to claim tight liquidity for not being able to raise funds and then\nlend them. However, it isn\u2019t a good sign for NBFCs as there\u2019s a high\npossibility of NBFCs turning back to banks. <\/p>\n\n\n\n<p>Banks are always known to raise capital by now. HDFC is planning to raise a capital of \u20b950,000 crore, however, Axis Banks have already done so. <\/p>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/learning\/challenges-entrepreneurs-face-while-staring-nbfc-in-india\/\">Challenges faced by Entrepreneurs while Starting an NBFC in India<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>In the last few months, the NBFC Crisis on Indian Economy has gathered much limelight. Especially, small NBFCs are struggling hard with asset-liability disparity amidst several corporate governance issues. Although the present liquidity crisis in the NBFC sector may not constitute any systematic risk, investors are seemed to be more worried. According to some market [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":6280,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[89,544],"tags":[1002],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/6279"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/comments?post=6279"}],"version-history":[{"count":15,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/6279\/revisions"}],"predecessor-version":[{"id":18540,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/6279\/revisions\/18540"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media\/6280"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media?parent=6279"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/categories?post=6279"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/tags?post=6279"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}