NBFC CRISIS

Why in News?

  • Non-banking financial companies (NBFCs) in India are going through a rough phase following defaults by once a blue-chip infrastructure lender, Infrastructure Leasing and Financial Services (IL&FS), on short-term debt instruments like commercial papers and non-convertible debentures (NCDs).

How this Crisis begun?

  • The ongoing liquidity crisis in the NBFC industry is the result of asset-liability mismatch (ALM), which transformed into a problem of mistrust after IL&FS was downgraded from its former triple A rating.
  • Since the NBFCs cannot raise retail deposits from the general public, they depend on wholesale lending for their capital requirements. As a ....
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