Is this India's Sub-prime moment?
Ever since the IL&FS crisis hit the Indian markets in Sep'18, several things have changed for the NBFCs (Non-Banking Finance Companies), Banks and investors in debt mutual funds. This blog looks at the core problem and resulting implications for retail investors! Background NBFCs are non-deposit taking organizations that are known to reach channels not easily accessible by banks for lending. NBFCs primarily takes loans from banks and instituitional investors such as Mutual Funds & Insurance companies at say 10% and lends it to businesses such as MSMEs, Real estate builders etc at say 14%. They make 4% (14% - 10%) of the entire loan disbursed, provided such loan gets repaid. Similar to banks, unpaid loans get classified as NPAs (Non-Performing Asset). NBFCs must also set aside money from their profits to cater to such NPAs (called Provisioning). The Stats Per RBI, as of Mar'18, total bank deposits in the country stood at Rs.117Tn (Lac crores), with NPAs of Rs.10Tn. In c...