The corona virus outbreak and the ensuing lockdown have hurt almost all industries in India, but for the country’s USD 370 billion shadow banking sector, the virus-led freeze is only the latest headwind in a multi-year storm that’s dragged this sector. Over the past two years, several non-banking financial companies (NBFCs) in India have been dealing with bad news upon bad news, including a cash crunch, the high cost of capital and burgeoning bad loans. Once praised for reaching every nook and cranny of India, today NBFCs are struggling for survival. Before we try to study the impact the pandemic has had on NBFCs, we need to understand the factors that have put this sector in such a predicament in the first place.
Credit Crunch Ripple It was September 2018 when the financial sector witnessed the onset of a crisis with a major player, Infrastructure Leasing & Financial Services (IL&FS) Group, an NBFC, defaulting on several repayments. At the time, this was a largely out-ofcharacter and unheard-of action and it shook the industry to its core, creating ripples of panic and apprehension. Established in 1987, IL&FS was set up as a financial institution that could also function as a technical consultant. Over the years, it grew in size and its influence in the industry, consisting of 300 group companies. However, slow economic growth forced the company to rely on debt funding which led to an accumulated debt of over ₹90,000 crore.
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