The money markets have been very nervous ever since news of IL&FS’ insolvency broke, fearing a huge contagion effect since the infra financier owes lenders close to Rs 1 lakh crore. The huge redemptions from liquid mutual fund schemes in September also spooked the markets.
Risk aversion has risen and lenders are funding only the better-rated NBFCs and HFCs; many NBFCs and HFCs, it is feared are staring at an asset-liability mismatches resulting from borrowing short — from mutual funds — and lending long. With lenders becoming choosier now, corporate spreads are widening.
Rollovers of commercial paper (CP) issued by finance companies, averaged more than 50% in the last fortnight of October and 70% for better-rated borrowers. The markets are hoping the Rs 1.5 lakh crore worth of CP renewals coming up in November go through smoothly. Banks have said they will pick up assets from NBFCs; already loans to NBFCs from banks jumped a sharp 45% year-on-year in September which is a good trend as this will result in less short-term debt and stable long-term borrowings.
The open market operations for Rs 40,000 crore in November, announced by the RBI, will add to systemic liquidity which is in a deficit. Meanwhile, NHB has upped refinancing by 25%. The loan growth data reveals that off-take of credit was relatively slow till mid-August but has picked up substantially since then; some Rs 3.2 lakh crore of loans have been given in the last four fortnights till October 12.