I
NDIA’Sfinancialsectoris in the
midstof a secondcrisis,evenas
thefirst in the formof a humong-
ousmassof non-performingassets
(NPA)on thebooksof commercial
banksremainsunresolved.Thistime
theproblemis notof non-financial
entities, especiallycorporations,de-
faultingon loanstakenfromthefin-
ancialsector, mainly banks,butof
financialfirms, mainlynon-bankfin-
ancialcompanies (NBFCs),default-
ing on debtinstruments theysoldto
banks,insurance companiesandmu-
tual funds. The current roundof
panicbeganwhenDewanHousing
FinanceLimited(DHFL),an earlier
favouriteof investors,financialmar-
ketsanalystsandthepolicymaking
establishment,“delayed payment”on
a Rs.1,000croredebt.Thecompany
claimsthat it willmeetall its interest
andcapitalpaymentscommitments
withintheseven-day“cureperiod”
availableto it whenthe paymentsfall
due,to avoidbeingin default. But
thatdependson its abilityto sell large
volumes of theassetsit holds or
shrinkits businessto garnerthere-
sources to makethe payment.
TheDHFL scareis, of course,not
whatcausedthe crisisandwhoall are
responsible appears periodicallyin
the media.Butwiththe government
having steppedin andreplacedthe
incumbentmanagementwitha new
boardmandatedto resolve the crisis,
the factthatIL&FSsignalleda much
largercrisishasall butbeenforgot-
ten,except for thoseinvolvedin or
engagedwiththeproblem.To oth-
ers,IL&FSfeaturedonlyas a com-
panyin whicha set of high-profile
executivesandtheircollaborators,
whooverborrowedthrougha com-
plexwebof companies theycreated
to invest in projectsandlendto entit-
ies who were fed new loans or
providedresourceswhentheyfailed
to generatesurplusesandwereon
thevergeof defaultingon pastbor-
rowing, manipulated thebooks to
showprofits that allowedthemto
paythemselveslargebonuses.But
theDHFLcrisisis a reminderthat
thatis onlya smallpartof the story.
Thenarrativein circulationsim-
plifies the problemevenif it doesnot
provideanyeasysolution. A number
of questions remain unanswered.
Why,for example, were theseexecut-
ives,whowerecelebratedandfetedthefirst signof a majorcrisisin the
NBFCsector.TheNBFCcrisiswas
first revealed in June2018,whenIn-
frastructure Leasing & Financial
Services(IL&FS)defaultedon a debt
of Rs.400 crore(mobilisedthrough
theissueof commercialpaperand
inter-corporatedeposits).Butsoonit
becameclear thattheIL&FScrisis
waslarger thanthatwhen,in early
September, another of thenetwork
offirms underits umbrelladefaulted
on a Rs.1,000-croreloanfromSmall
Industrial Development Bankof In-
dia (SIDBI).As of now, the totaldebt
of the morethan 150 domesticcom-
paniesin the IL&FS group is placed
at aroundRs.1,00,000crore,with
mostof it in defaultin principle.To
ensuretheorderlyresolutionof the
problemthroughthesaleof assets
andothermeans,the NationalCom-
pany Law Appellate Tribunal
(NCLAT) hasimposed a temporary
moratoriumon repaymentrequire-
mentsby morethan 100 of thedo-
mesticcompaniesin the group.
Theresolutionof the crisisis tak-
ing longandquestionsas to whowill
carryhowmuchof the burdenof loss
are stillbeinganswered.ThenewsofTowards a meltdown
Closeon the heelsof the IL&FScrashin 2018,DewanHousing
FinanceLimited“delayspayment”on a Rs.1,000croredebt,
signallinga secondmajorcrisisunravellingin the NBFCsector.