NBFC crisis slows GDP growth
India’s GDP growth slowed to 6.6% in the October-December quarter of 2018-19, the lowest rate in five quarters, primarily due to the stress among the non-banking finance companies (NBFCs). A direct correlation can be seen as many NBFCs have been facing liquidity challenges resulting in slower loan disbursements and eventual fall in demand and consumption.
One of the worst-hit sectors in the midst of the NBFC crisis is the realty sector which receives over 90 per cent of its finances from NBFCs. “NBFCs or Housing Finance Companies (HFCs) have incrementally financed 90 per cent of commercial real estate (CRE) loans over the last four years even while banks have largely stayed away,” said Shibani Kurian of Kotak Mahindra AMC.
“In fact, the commercial real estate book of NBFCs or HFCs like HDFC or LICHF has increased five-fold, from Rs 30,000 crore in FY14 to Rs 1,70,000 crore in the current fiscal. With the liquidity squeeze in NBFCs and HFCs, the refinancing cycle for CRE players has stalled.”