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The Department of Economic Affairs DEA fears significant default from large nonbanking finance companies NBFC and housing finance companies in the next six weeks if no additional liquidity support is provided to these firms, MoneyControl said on Friday
Bengaluru: The Department of Economic Affairs (DEA) fears significant default from large non-banking finance companies (NBFC) and housing finance companies in the next six weeks if no additional liquidity support is provided to these firms, MoneyControl said on Friday.
The DEA, in a letter to the Ministry of Corporate Affairs, described the financial situation as “still fragile” when discussing the financial stability impact of the Infrastructure Leasing and Financial Service Ltd’s (IL&FS) default, the website said.
A string of defaults at IL&FS have triggered sharp falls in stock and debt markets amid fears of contagion within the rest of the country’s financial sector.
Last month, the Indian government took control of IL&FS to protect the financial system and markets from potential collapse, and replaced its board. The new board submitted a plan to revive the debt-laden firm this week.
Nearly Rs 2 lakh crore of NBFCs and HFCs debt is due for redemption by the end of December, the DEA said in its letter. It said it estimates a funding gap of as much as Rs 1 lakh crore by the end of the year.
The DEA declined to comment on the matter.
A further rs 2.7 lakh crore of commercial paper and non-convertible debentures will be due for redemption over Jan-March next year, the report added, citing the letter.
Without additional liquidity support a significant default from the largest NBFC and HFC could occur within six weeks and the financial cycle of the productive sector would be adversely affected, the report said, citing the DEA letter.
The report comes amid a growing spat between the government and the RBI.
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