State Bank of India Chairman Rajnish Kumar recently stated that the country’s non-bank financial institutions are finally recovering after years of struggling. CNBC reported that these “shadow lenders” in the sector are still facing some issues but are in a “much better position” lately.
Kumar noted that the shadow banking sector, which pertains to activities of non-bank financial companies (NBFCs), has been straining against and are still fighting funding issues. According to Kumar’s statement, “Some NBFCs which may be weak or facing solvency issues” are slowly “coming out” of the issues.
NBFCs usually offer high-yield lending, which is not subject to the regulations and guidelines that apply to the regular banking industry. In order to provide funds for borrowers, these institutions get short-term loans from other sources such as banks and mutual funds.
The issue stemmed from the fact that many of their borrowers have defaulted on their payments. This left NBFCs unable to pay their short-term loans.
In addressing the problem, Kumar said that they have been doing “clean-ups.” Moreover, shadow banks have formulated strategies in order to come up with funds for their lending activities.
The chairman noted that “[shadow banks] have been able to raise funds in international markets” as well as from equity markets. Kumar took on am more optimistic view on the matter. However, he stated that much care needs to be done in order to fully recover from the losses.
Aside from issues in the shadow banking sector, India’s banks have also been facing problems. CNBC reported that such institutions have been “laden by debt and are said to have the highest exposure to bad loans.” The government addressed this by funneling billions of dollars into these lenders but on the condition of making changes in their policies.