The worst volume crunch in India’s banking system in more than 24 months is adding to refinancing risks for shadow banks uneasy by a rare default in the country’s money markets. And that means trouble for some financial stocks.
A debt crisis at Infrastructure Leasing & Financial Services Ltd., which is a conglomerate that’s missed payments on more than five things since August, is adding to borrowing costs in credit markets. That’s creating trouble as the central bank steps in to boost up a weakening rupee have soaked up liquidity and as recent corporate tax payments had already left less cash in the financial system.
Panic rushed into India’s stock market recently and the government looked to support financial markets. Non-bank lenders and mortgage financiers, the largest borrowers, overall from the financial system, would have to shoulder the brunt of any continued trouble.
“Tightening liquidity is pushing up borrowing costs,” A.M. Karthik, sector head for financial sector ratings at ICRA Ltd., said by phone. “Non-bank lenders, which are heavily dependent on market borrowings, are likely to face rollover and repricing risks.”
Liquidity in the financial system is currently at a deficit of around Rs 1.4 trillion, according to the Bloomberg Economics India Banking Liquidity Index, having moved from a surplus of Rs 58,000 crore earlier this month. Advance tax outflows in the second half of the month were a major factor in the cash crunch. The average yield on one-year corporate notes jumped to the highest since 2015 last week, before easing.
Meanwhile, IL&FS is seeking to raise more than Rs 30,000 crore selling assets to cut debt, according to an internal memo seen by Bloomberg.
