It looks like the NBFC crisis is looming on the significant financiers in the market. The crisis is creating a domino effect on the economy as a whole. The entire economy is facing a liquidity crunch, and the NBFCs are no different. The recent downgrades by rating agencies in NBFCs, housing finance companies, and infrastructure projects speak a lot about the problems caused by the crisis.
Who defaulted yet again?
Dewan Housing Finance Corporation (DHFL) witnessed a decline of over 2 percent in its share prices after announcing a default of Rs. 196.65 crore on obligations pertaining to bond repayment. The default by DHFL was the principal and interest on NCDs worth Rs 350 crore.
Another default was by the NBFC backed by global investors, Altico Capital India Ltd. The default was concerning the interest payment to Dubai-based Mashreqbank PSC of Rs 19.97 crore. This amount has defaulted for the principal amount on the commercial borrowing of Rs. 340 crores.
The defaults of DHFL and Altico grabbed eyes on India's real-estate sector which receives significant funding from these NBFCs. These companies have been profoundly impacted by the NBFC crisis ever since it started in September 2018.
DHFL owes almost Rs 1 lakh crore including Rs 50,000 crore to banks. The housing finance company has defaulted on many commitments. This resulted in them being forced to sell their non-core assets to repay the loans. There is a resolution to be passed by the bankers for restructuring, and the lenders are waiting for fresh funding of Rs 7,000 crore.
Are they paying For Aggressive Growth?
The Altico Capital default came after a phase of aggressive growth and expansion. The loan book of Altico stood at Rs 6,905 crore at the end of 2019. In 2017, the NBFC doubled its loan book from the figure in 2016 and expanded it further by 70 percent in 2018. The growth stagnated when the real estate sector started suffering in 2019. During this phase, Altico accounted for some bad loans. This was the start of the debt book to grow.
The gross non-performing assets stood at 1.8% at the end of 2019. A word of caution was also given to Altico by India Ratings regarding the weak credit situation of projects as most of the profiles were of real-estate developers that could increase NPAs.
The case was similar with Dewan Housing Finance Limited.
Altico stated that it's total borrowing from banks and financial institutions are Rs 4,361.55 crore as of September 12, 2019. The shares of the DHFL closed 0.68% lower at Rs 50.90 on BSE on September 13, 2019.
We don't know when this hovering crisis will be over. But, what we certainly know is that a liquidity squeeze will improve the situation for not only the NBFCs but also the property sector in the country. A pertinent question at this point is if we will see more defaults in the future or there is scope for these industries to boost and in turn, improve the economic scenario.
Read more about the DHFL survival situation here.