Indian shadow banks’ woes are worsening by the day with investors now demanding the highest premium in six years to hold their short-term debt. Spreads on top-rated one-year bonds of Indian non-bank lenders over government bonds of the same maturity have risen 63 basis points since India’s mini-Lehman moment when the systemically important Infrastructure Leasing & Financial Services Ltd. was cut to default in September. This is the widest level since 2013, according to data compiled by Bloomberg.
Trouble has only spread across the sector in recent months. Edelweiss Financial and Piramal Capital & Housing Finance are the latest to join an expanding list of non-bank financiers downgraded or placed under watch by rating companies after ICRA cut their long-term ratings this week. Others in the list include Reliance Capital, default-rated Dewan Housing Finance and Indiabulls Housing Finance.
The crisis has hurt the real estate sector, which had grown increasingly dependent on shadow banks for financing in recent years, raising prospects of a wave of defaults that could hit back at the non-bank lenders.
“With the liquidity situation not easing up and the real estate stress building up, the investors are expected to continue to be selective with their shadow bank investments and also ask for higher premiums in the coming months,” said Jindal Haria, director at India Ratings.