The Ministry of Corporate Affairs is learnt to have submitted a report to the finance ministry, flagging its concerns over potential liquidity risks to some housing finance companies (HFCs), including Dewan Housing Finance (DHFL) and Indiabulls Housing. Amid fresh rumours that DHFL could default on payment pledge, the government has stepped up its monitoring of the NBFC segment. Stocks of HFCs, including DHFL, Indiabulls and PNB Housing Finance, were down on the BSE on Monday due to fears of a looming liquidity stress. PNB Housing Finance has clarified that it is not facing a crisis. In September as well, rumours of a default by DHFL had led to a plunge in its share price by as much as 60% intraday, which also weighed on those of other HFCs. In their discussions with the finance ministry, certain HFCs are learnt to have flagged concerns about a possible spillover of contagion if DHFL defaults, a source told FE. Recently, the Department of Economic Affairs (DEA) wrote to the Ministry of Corporate Affairs, flagging a looming liquidity crunch in the NBFC segment following the crisis at IL&FS. About `2 lakh crore of debt of NBFCs, including HFCs, is due for redemption or rollover by December, the DEA is learnt to have said in a recent letter to the corporate affairs department, another source said. If the pace of fund-raising witnessed in the first half of October is maintained, it could lead to a funding gap of around `1 lakh crore by end-December. Additional commercial paper and non-convertible debentures worth `2.7 lakh crore will be due for redemption in the last quarter of this fiscal, which could raise their need for financing, the DEA has said. The finance ministry has also asked state-run banks not to tighten lending to HFCs without strong reasons to ensure that they are not under undue pressure on redemption. To ease liquidity in the HFC segment, the Reserve Bank of India (RBI) last week allowed banks to offer partial credit enhancement (PCE) to bonds issued by non-banking financial companies (NBFCs) and housing finance companies (HFCs), subject to certain conditions. The PCE enables a company to improve its creditworthiness by securing backing from a higher-rated entity (a bank in this case). The RBI move will help these firms to raise more resources from the market at lower rates, although some bankers remained sceptical about the efficacy of the move in propping up liquidity fast. According to a recent Credit Suisse report, lax norms adopted by the regulator, NHB (an arm of the RBI), on how HFCs must report their asset-liability management (ALM) could be cloaking the ALM mismatch in the segment. So, although HFCs have come out with decent ALM records, with shortfall (asset minus liabilities) reported at under 10% of their loan books over the near term, the report cautioned that easier guidelines could be \u201cdistorting the true picture\u201d. Cautioning against a looming credit crunch, the report has said even as bank credit growth in the last two years averaged at 7%, a strong 20%-plus growth in NBFC credit aided overall credit expansion beyond 10%. The imminent slowdown in the NBFC growth could lead to a domestic credit crunch, and overall credit growth could drop below 10%, as state-run banks continue to be constrained by capital and private banks by liquidity. To ease liquidity, National Housing Bank, the regulator of HFCs, has raised its refinancing target by 25% to `30,000 crore for the year through June 2019. The RBI, too, recently eased the ceiling for lending to a single NBFC until end-December, which is expected to facilitate additional lending of `59,000 crore to NBFCs. State Bank of India has said it will triple its target of buying standard loans from NBFCs to `45,000 crore in 2018-19.