The Ministry of Finance fears major failures on the part of the NBFC without liquidity guarantees; says fragile situation

Ministry of Finance Fears Major Failures by NBFC Without Liquidity Guarantees

The Indian Ministry of Economic Affairs is concerned that major non-bank financial corporations (NBFCs) and housing finance companies will not be largely defaulting in the next six weeks if no additional liquidity assistance is provided to these companies. announced Friday the MoneyControl economic information website. In a letter to the Ministry of General Affairs, the DEA described the financial situation as "still fragile" when it debated the impact on financial stability of the failure to pay Infrastructure Leasing and Financial Service Ltd. (IL & FS) , says the website.

A series of failures at IL & FS caused a sharp drop in Indian stock markets and debt, as fears of contagion persisted in the country's financial sector.

Last month, the Indian government took control of IL & FS to protect the financial system and markets against a potential collapse, and replaced its board of directors. The new board presented a plan to relaunch the debt firm this week. Nearly 2 trillion rupees (27.23 billion US dollars) of NBFC and HFC debt are due by the end of December, the DEA said in its letter. He said he estimated a funding gap of up to Rs. 1 trillion by the end of the year.

The DEA declined to comment on the case. Two hundred trillion additional rupees of commercial paper and non-convertible debentures will have to be redeemed in January-March next, the report quoted the letter as saying.

In the absence of additional liquidity, the largest NBFC and HFC companies could default in the next six weeks and the financial cycle of the productive sector would suffer, said the report quoting the DEA letter.

The report on the letter comes amidst a dispute between the Indian government and the Reserve Bank of India (RBI), one of the disputes over government pressure on the Indian central bank to increase the liquidity of NBFCs.

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