The crisis in India’s shadow banking sector will no doubt hang heavy over the upcoming RBI board meeting. Is a bailout possible?
What seemed to be a debt default by a single large nonbanking financial company (NBFC)—Infrastructure Leasing and Financial Services (IL&FS)—has assumed such large proportions that it threatens to derail the entire sector and throw into jeopardy a clutch of companies involved in asset financing and personal loans. The crisis in India’s NBFCs, triggered by the IL&FS debacle, has taken centrestage in the economic debate even as the tussle between the Union government and the Reserve Bank of India (RBI) on a host of issues, including refinancing for NBFCs, is heading for a climactic showdown at the central bank’s next board meeting scheduled on November 19.
The threat looms large, but sources indicate that the panic buttons haven’t been pressed yet on India’s thriving EMI economy—which funds everything from cars to homes to gold purchases in manageable equated monthly instalments, and even small businesses—and there’s optimism that the RBI will come up with new ways to pump more money into NBFCs. “NBFCs are currently not only in a crisis of liquidity but also of confidence,” says Abizer Diwanji, partner (financial services) at consulting firm EY India.
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