Shares of non-banking finance companies (NBFCs) plummeted further on Monday on expectations that the firms may face a liquidity crunch after IL&FS and its lending arm defaulted on a series of loan repayments. Bajaj Finance fell 5%, Gruh Finance 5%, Cholamandalam Investment and Finance 4%, Edelweiss Financial Services 3%, Indiabulls Housing Finance 3%, Repco Home Finance 4%, GIC Housing Finance 3% and PNB Housing Finance 3%.
“Investors raised concerns over tightness in the money market amid continuing financial crisis at IL&FS. Further, investors are risk averse after the recent experience of IL&FS, which dampened overall market sentiment,” said IIFL in a 21 September note.
“Traders expect borrowing costs for NBFCs to rise and they could face challenges in raising funds. Market participants are linking this with other NBFCs and housing finance companies which use commercial paper as one of their sources of funding,” the report added.
Shares of NBFCs started falling on Friday after reports said that DSP Mutual Fund was forced to sell commercial paper of Dewan Housing Finance in the secondary market at a higher yield. DHFL, however, clarified that it had not defaulted on any repayment and had enough liquidity to meet its obligations till March 2019. The DHFL stock gained over 25% after falling over 40% on Friday.
“For HFCs, profitability and growth would be under pressure due to intense competition and unfavourable asset-liability profiles,” said JM Financial in a note.
Finance Minister Arun Jaitley said in a Twitter post that the government would take all measures to ensure that adequate liquidity was provided to non-banking finance companies, mutual funds and small and medium enterprises.
On Friday, Ramesh Bawa, managing director of IL&FS Investment Managers, a unit of IL&FS, resigned. On the same day, the non-banking financial company told the stock exchanges that it had defaulted on a letter of credit to IDBI Bank.
Mint reported on 21 September that the shareholders of IL&FS were working on the sale of a majority stake in its financial services unit and additional assets worth INR 4,500 crore to repay its debt.
On 17 September, rating agency Icra revised the credit rating of IL&FS to default after it failed to meet repayment obligations of INR 12,000 crore in short- and long-term borrowings. As on 31 March, IL&FS’s total outstanding debt stood at Rs 91,091.31 crore at the group level, an increase of 14% from the previous financial year.
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