Shadow Bank Risk Roars Back in India
Little did anyone know a year back that it would get this bad with missed debt deadlines in India’s credit markets.
(Bloomberg) -- Little did anyone know a year back that it would get this bad with missed debt deadlines in India’s credit markets.
But twelve months after infrastructure financier IL&FS Group defaulted for the first time in June last year, investor confidence has again been shaken this week by signs that the crisis is spreading among shadow banks. Stock investors to policy makers are taking notice, given the importance of the non-bank financing companies to the nation’s economy.
Among the worst hit in the wake of the IL&FS shock, which pushed up financing costs and made it harder for non-bank financing companies to access the bond market, is major mortgage lender Dewan Housing Finance Corp. The firm’s short-term credit rating was cut to default by Crisil, the Indian unit of S&P, on Wednesday. Its shares plunged 11.5% on Thursday.
The pain in the shadow banking sector poses a challenge for Indian economic growth that has already slowed to a five-year low. Steps to manage the liquidity crisis will be crucial during Narendra Modi’s second term as prime minister. Nerves have already been rattled by defaults at Jet Airways India Ltd. and debt concerns at conglomerate Essel Group.
Crisil cited delays in debt servicing payments at Dewan Housing that were due on June 4 on some non-convertible debentures because of inadequate liquidity. The company has been on a spree to sell its assets including a mutual fund and education loan company.
That echoes moves at Indian tycoon Anil Ambani’s Reliance Capital Ltd., yet another company that’s rushing to sell businesses to meet mounting debt obligations.
Thursday brought more signs of strains in the nation’s credit markets. Bollywood filmmaker Eros International Media Ltd.’s long-term bank facilities rating was cut 10 notches to D from BBB- at Care Ratings, following what the rating firm called "delays/default" in debt servicing due to a slowdown in the collection from debtors.
Shares of Eros slid 20% in India to the lowest since 2010.
--With assistance from Anto Antony.
To contact the reporter on this story: Divya Patil in Mumbai at dpatil7@bloomberg.net
To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Finbarr Flynn
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