India banking

Why India’s NBFC bailout is no long-term solution

New Delhi will fall into the same situation facing the banking sector if it relies on government funds to support non-bank financial companies. An overhaul of funding channels is necessary.

India’s troubled shadow banking sector can heave a sigh of relief after the government announced plans last week to grant Rs1 trillion $14.6 billion of credit guarantees to struggling non-bank financial companies NBFC, the latest attempt by New Delhi to avoid a full-blown financial crisis.

The six-month programme, announced as part of India’s 201920 budget, will allow state-owned banks to use the funds to buy high-quality assets from NBFCs, many of which have been struggling from a liquidity crunch.

This liquidity crisis erupted late last year after Infrastructure Leasing Financial Services ILFS, an unlisted infrastructure lending giant, defaulted on a number...

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