IL&FS crisis may lead to consolidation in NBFC sector: Fitch

The report comes against the backdrop of the Reserve Bank of India's decision to create a specialised team to regulate and supervise the financial sector, including NBFCs and banks.

NBFC sector in India has adversely impacted by the IL&FS debt crisis. It affected their growth which might lead to the consolidation in future, said by Fitch Rating in a report. Non-banking financial companies (NBFCs) are also known as the shadow banking sector. Reserve Bank of India decides to create a special team to regulate and supervise the whole financial sector, including Banks and NBFCs, said a report.

In 2018 the rapid growth and reliance of Indian shadow banking on short-term funding sources “bubble over,” the default by IL&FS in September last year was the reason behind it, a report said. The default by IL&FS reduced the market access for other non-banking financial institutions, directing the domestic regulators re-examine the norms of liquidity for the sectors and push banks to purchase assets and increase their lending from such entities.

“Fitch believes these dynamics will reflect on the growth prospects and likely lead to the consolidation of the industry,” said the report. IL&FS group has a debt of almost Rs. 94,000 crore. Government-appointed directors have been taken over the company’s management board. The report also said that over the last decade, the Indian shadow banking system has developed rapidly since the financial companies start providing asset finance and loan on homes and investing funds in infrastructure loans.

It added, non- banking growth was fuelled by accommodative funding market followed by demonetization of high-value currency notes in November 2016.