An apartment building under construction in the Bandra Kurla Complex in Mumbai. Photographer: Brent Lewin/Bloomberg

Housing Lenders Facing Major Liquidity Challenges, Says Corporate Affairs Secretary

A segment of non-banking financial companies, housing finance companies, is facing liquidity challenges and steps taken by the government will help address these concerns, Corporate Affairs Secretary Injeti Srinivas told reporters.

“It’s basically a segment of NBFCs, which is facing liquidity problems, it’s more pronounced there,” said Srinivas.

Defaults in repayments by infrastructure finance firm IL&FS Ltd. and its subsidiaries led to fears of a contagion in the financial and credit markets. This led to concerns that non-banking lenders would be unable to refinance their market borrowings, impairing growth. The risk stemmed out of tight liquidity conditions followed by a trust deficit due to the defaults.

On whether the government has found serious liquidity challenges at Indiabulls Housing Finance, PNB Housing Finance and Dewan Housing Finance Corporation Ltd., Srinivas said, “I won't get into individual names, it is a segmental problem, these are big entities part of that segment.”

He said the measures taken by the government and the Reserve Bank of India will address the liquidity stress.

On Nov. 2, the RBI allowed banks to offer partial credit enhancement to bonds issued by non-bank lenders. The decision is intended to help these firms refinance their borrowings and tide over a period of tight liquidity and risk aversion.

Srinivas also said the industry needs to introspect the way business is conducted and adopt a sustainable model which considers sources of funds and adequately deploy them to minimise asset liability mismatch.

PNB Housing Finance later clarified that it’s comfortably placed with respect to the asset liability management position, while DHFL said the company has sufficient liquidity to meet all financial obligations.

PNB Housing Finance said it’s "broadly matched" with respect to the asset liability management in the 0-1 year bucket. The housing finance company’s short-term borrowing has reduced to 11.7 percent in September from 17.5 percent in March. DHFL said it has bought back commercial papers worth Rs 1,775 crore and Rs 9,665 crore today and since September, respectively.

Also read: What The Post-NBFC Crisis ‘New Normal’ Looks Like