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Tag: Banking

Breaking into the new ground – Renuka’s transformation from IT to investment banking

Posted on by Imarticus Learning

 

Renuka recounts the various challenges she had to face as she made the career change and how Imarticus enabled her to achieve her dreams.

It was Renuka’s ambition to work for a top tier investment banking firm like Morgan Stanley and this was one of the reasons as to why she had enrolled in Imarticus learning’s certified investment banking course, in the first place. In fact, her very first questions to us were regarding Morgan Stanley and her chances of landing a job there.

Renuka comes with a background in IT with her bachelor’s in computer science and her additional IT-related courses, which ranged from programming languages to IT architecture. But despite excelling in her respective field, Renuka had always had an interest in investment banking, one that was set to grow further over the years. Of course, she had no idea on how to affect the change and then, she came across the Imarticus learning’s certified investment banking course and the rest fell into place. She reviewed the course, the course curriculum, consulted with her peers and then, took the leap of faith, so as to speak.

Given the fact that Renuka had little to zero experience in the banking field, she naturally found the course to be overwhelming at the start. But soon, she got the hang of it, thanks to our platform that enables all students to review the various modules, notes and more, 24X7. The course came with a detailed curriculum that covered everything from the basics of banking to commodity trading, CFDs and more. Granted that the learning curve may have seemed a little steep for Renuka but thanks to the detailed modules she was able to manage the same effortlessly.

According to Renuka, the course was exceptional in the sense that it introduced innovative teaching methods and applications to simplify a complicated subject. And as a result, she was able to understand most of the aspects of banking which simply was not possible before.

The course came with a combination of physical classes as well as a self-paced online module which helped Renuka and students like her to keep up with the rest of the class.  And as a result of this course, Renuka was able to achieve the transformation that she had sought and in the process, she managed to achieve her ambition as well.

Even before the completion of the course, Imarticus encouraged Renuka to apply for Morgan Stanley’s current recruitment drive in Mumbai. She was reluctant at first on account of the fact that she had not yet completed her course, but soon decided to go for it as the interview process itself should prove to be quite invaluable.

Imarticus stepped in and made Renuka prep for her interview and even provided her with a set of resume building workshops as well. Well, all these attempts paid off solidly since her interview went through without a hitch and Morgan Stanley made her an offer as well. Renuka was naturally in cloud 9 over the fact that she managed to snag a job offer from Morgan Stanley.

But before she left us for Morgan Stanley, she made it indubitably clear that it was the course that made it all possible. Imarticus provided her with support and assistance when she needed it the most, with detailed lectures and modules; it was this that helped make it possible for Renuka to achieve her dreams.

So the only question that you have to ask yourself is whether you are aspiring to be an investment banker? And if the answer happens to be a yes, then you know what course to opt for – so call us today.

For more details and further career counseling, you can also contact us through the Live Chat support system or can even visit one of our training centers based in – Mumbai, Thane, Pune, Chennai, Banglore, Hyderabad, Delhi, Gurgaon, and Ahmedabad.

Imarticus Learning Reviews – Anuraag Linga’s Astounding Journey With Imarticus

Posted on by Imarticus Learning

 

If you want a career in Investment Banking, Imarticus learning is your go-to place, says Anurag Linga, who had enrolled for Imarticus’ KYC-AML training program. According to Anuraag, it was a career-defining learning experience for him. With amazing trainers and best faculty members, Imarticus’ Investment Banking Training gave him a 360-degree exposure. For him, the program was a 45-days knowledge enriching program which was informative and fun at the same time. He recommends the course to everyone seeking a career in investment banking.

What Anurag liked the most was how the trainers were not providing bookish lessons but had in-depth knowledge of the subject, which made it interesting for him to study and learn new concepts. He also adds that the teaching methodologies were quite on point, making it easy for him to understand the intricate details of the training program.

For him, the highlight of the program was the correct curriculum implemented to convey each lesson in a systematic manner without missing on anything minor or major. 

Some of the advantages of the Imarticus Learnings’ Investment Banking Training mentioned:

  • With a process-specific course and well-defined syllabus, Imarticus provides every student with a chance to excel in various investment-related aspects.
  • Imarticus learning reviews every student’s performance and helps them leverage their strong areas while helping them to improve on their weak point.
  • With Imarticus learning placement, every student who undergoes training with them can find offers from the top investment banks from across the Globe.
  • At Imarticus, it is not just about point to point learning; it is about exploring a vast horizon of knowledge.
  • For students who want to start their career in investment banking, Imarticus learning provides career counseling sessions which are quite helpful.
  • The approach of conveying lessons is quite practical, and hence, it is easy for the students to associate the lessons with real case problems in the finance industry.
  • The courses at Imarticus learning are divided into four parts, namely classroom learning, experiential learning, reinforcement of learned concepts and state-of-the-art learning management system.

Talking about Imarticus learning placement, it is one of the most sought-after placements, which promise a valuable experience to all the candidates.

With all this said, Anurag concluded by saying that he has achieved what he desired with Imarticus learning’s training programs. For him, the training was not just about KYC-AML; it was about discovering a whole new side of the finance and the investment industry.

This was one of the many testimonials for Imarticus learning. As mentioned by Anuraag and many other candidates like him, Imarticus is not just an education center, it is a promise for a brighter future into investment banking.

With a holistic learning experience, Imarticus has taught students about a broader scope in the investment industry. The cutting-edge technical support, the highly experienced faculty and the best in class infrastructure is proof of the quality of education at Imarticus Learning.

So, what are you waiting for? If you want a career in investment banking, Imarticus is a one-stop solution for all your knowledge requirements. The Imarticus learning reviews are a testimony to the fact that it is not easy to build the right career track without taking the right career choices and Imarticus learning proves to be the right step if you hope for a fruitful career as an investment banker.

Enquire about the courses offered at Imarticus, enroll for the next batch and be a part of the change in the investment sector. With Imarticus, don’t just learn for the sake of it, look into the intricate side of every investment decision.

For more details regarding this in brief and for further career counseling, you can also visit – Imarticus Learning and can drop your query by filling up a simple form through the site or can contact us through the Live Chat Support system or can even visit one of our training centers based in – Mumbai, Thane, Pune, Chennai, Banglore, Hyderabad, Delhi, Gurgaon, and Ahmedabad.

Want To Learn New Age Banking? What Are The Prerequisites For It?

Posted on by Imarticus Learning

With the banking industry constantly evolving to keep up with new technology, there is a surge in jobs in entirely new categories. New age banking is no longer a dream but a reality that all banks are transitioning towards and the career opportunities created are diverse and exciting.
What Is New Age Banking?
New age banking is the integration of digital technologies into banking services in order to reduce the hassle associated with traditional banking. This means no more long lines to basic bank work like deposits, transfers, and more. Today, you can easily open a new bank account, get a credit card, generate new PIN numbers, and more, all in the comfort of your home.
In India, new age banking is still in its infancy and there is a lot more scope for expansion of its capabilities. In many systems around the world, banking is now under one large umbrella where you can jump from one system to another seamlessly.
With new age banking, comes a whole new host of challenges and possibilities. People working in this sector have to have a range of qualifications and strengths in different aspects.
How To Get Into New Age Banking?
New age banking requires a complex and diverse set of skills with an in-depth knowledge of various banking concepts. While you can go about acquiring the required skills and expertise on your own, it is far more advisable to take the many New Age banking Courses available. These courses will cover a range of topics. A good course should also help you with placements at reputable financial institutions. Here is a list of concepts you will be required to master in order to get a job in new age banking.

  1. Macroeconomics: It is imperative to understand macroeconomics and the various implications of the same. You will have to understand the financial sector, economic system, and learn how to analyze economies, industries, and companies.
  2. Finance: You will have to have a theoretical and practical understanding of financial products, the different asset classes, wealth management, and market microstructure.
  3. Financial Analysis: Here, you must have an understanding of financial statements, ratios and their analysis, credit analysis, and credit management in banks and NBFCs.
  4. Fintech: This is a diverse field where you will have to be familiar with several concepts and how to work with them.
  5. You will be expected to have an understanding of using fintech for managing capital.
  6. An in-depth understanding of blockchain and cryptocurrencies is also essential.
  7. You will need to understand how machine learning and robotic process automation (RPA) can help you with financial analysis.
  8. Retail Banking: You will require an understanding of several concepts and have Retail Banking Skills such as deposit products and operations, retail lending, mobile banking, internet banking, branchless banking, and POS terminals.
  9. Corporate Banking: A close understanding of debt products, liability products, working capital, trade finance, and its products, forex sales and operations, treasury products, international products, and fintech in corporate banking.
  10. NBFC: You will need to understand Non-Banking Financial Companies, their products, classifications and funding, sourcing channels, credit underwriting, collection, and digital innovations in NBFCs.
  11. Risk Management: Here you will have to be familiar with the types of banking risks, liquidity risks, market risks, credit risks, and operational risks.
  12. Regulatory Framework: It is essential that you have a good hold on the different regulations in place which includes client onboarding, anti-money laundering, regulatory frameworks and compliance, and regtech.

Apart from having technical skills of the various concepts involved in new age banking, you will also require to have several soft skills in order to secure a job in new age banking. Some of these include:

  • Good communications skills
  • Business writing skills
  • Global business etiquette
  • Customer-centric sales understanding
  • Strategic selling
  • Negotiation skills
  • Proficiency in Excel
  • Good resume writing abilities
  • Interview skills

As you can see, New Age Banking is a complex and diverse field where you will require a strong understanding of several concepts. Financial institutes looking to hire for new age banking expect their employees to continue their knowledge of the field even after learning the basics. A strong people-centric approach is necessary for a job in new age banking.

Fintech Banks, All Set to Be Scrutinized Heavily by Relevant Regulators

Posted on by Imarticus Learning

Here’s when the fintech ventures tripled their global investments to 12.21billion USD. Clearly, since then the fintech industries have taken root in the revolution of digitization and blockchain technology. The early innovators accepted the challenges and the financial services industries took bold engaging steps to get them there.
Accenture reported their insights into the common themes needed for reimagining the fintech sector as openness, investment, and collaboration. Prophetic words and insights!
Cut to the present!
“Fintech banks all set to be scrutinized heavily by relevant regulators.” Is the latest shock to the growing fintech industries.
Fintech ruled the last half decade and emerged the most successful multi-billion dollar worth industry innovation in the financial world which can potentially disrupt and transform the way money is spent.
With the aim of developing faster-advanced systems for payment, the success of Fintech led to real-world banks totally powered by such innovations. Revolut, Monzo and such companies led the revolution’s success and the market was burgeoning with others who wanted to start such fintech banks and numerous applications targeted to make that possible. That’s when the ‘openness’ criterion apparently overstepped its boundaries and the regulators began taking a hard-stance in going slow with the green-light for such banks. Currently, their scrutiny is pretty stringent with the ultimate goal of ensuring fintech banks unscrupulous few do not cheat their customers.
Openness:
Transparency, customer trust, and openness are the core of the revolution where fintech innovation, digital technology and a lot of money is invested. Large organizations have the resources and knowledge capital to engage with such revolutionary technologically innovative solutions and change their culture and organizational structure to scale profitability very rapidly. They invest their assets, intellectual properties, and skilled resources to open up newer areas of services and products where customers are invested.
When the banks and financial services sectors grow explosively there are many who jump onto the bandwagon to unscrupulously make a profit at the expense of the customers. Scrutiny, regulation and heightened awareness is thus natural, essential and should be mandatorily undertaken. The PRA- Prudential Regulatory Authorities has rightly clamped down to take the necessary measures. The yearly approved proposals till Feb 2019 were just 4 compared to 12 licensed proposals in the previous year!
Investment:
Innovation, industrial growth and the promotion of financial systems never grow in isolation. Venture investing, capital markets and such are also invested in such fintech banks and industries. More than ever, the present trend is to focus on the immensely popular and profitable fintech innovations and even governments are not far behind in offering sops to the growing industry.
The decrease in the fintech banks approvals makes it very clear that the PRA means business. James Borley of PRA was quick to clarify that this was not a rap on the knuckles of an industry that is booming. Rather the stringent scrutiny measures are meant to ensure the dubious proposals stay out and transparency and openness encouraged while protecting the investors.
Collaboration:
The platform of fintech is a unique example of collaboration between two areas where traditionally there was none. Technology and finance both traditionally collaborated and shared process within their own areas. Fintech effectively opened up the rush for all industries to collaboratively partner in the quest for newer ideas, market opportunities, reduced costs, and increased value. With the PRA’s action collaboration will now have to be more effective, across diverse industries and outlooks to ensure value generation.
According to the PRA, they are encouraging increased inter-bank competition and will encourage the new bank players with a careful eye on scrutiny measures. The PRA challenges to approval can be easily gotten over with being prepared for ensuring the process does score on openness, transparency and investment protection.
Embracing scrutiny on all the above counts can create the foundation to disrupt their business models. By active participation, they do not need to sideline their core models for challenger non-core models where they could be relegated to the sidelines.
Concluding notes:
It is definitely going to be uphill to get fintech bank approvals from the PRA watchdogs. The very pace and rate of fintech disruption have meant that banks have altered their models to introduce new-age banking and a bouquet of services. Newer banks and services mean a boom in the need for trained professionals, training and better use of data analytics and customer insight.
If you are interested in a Fintech Career try the Imarticus Learning Academy who believes heightened scrutiny always makes better fintech banks.

Are Fintechs Really An Enabler For The Traditional Banks

Posted on by Imarticus Learning

Fintech or Financial Technologies is the new branch of technology that aims to improve and automate the delivery of financial services. In the beginning, Fintech was employed for the back-end applications of the financial institutes.

But, since then, the technology has taken a diversion towards the consumer-oriented services. Fintech is expected to change the face of the banking sector in the next two decades. Whenever a new technology is introduced, a battle for the market domain is typical between the old guards and new entrants. The story is not different for Fintech.

So many organisations are out there with an opinion that Fintech is going to make a negative impact on the traditional banking services. This article discusses how the Fintech is going to act as an enabler to the traditional banks rather than being a challenge.

The Technological Challenges: Past and Present

In the past, the financial institution has proven to be slow towards the innovation. Yet, showing great resilience towards the challenges in the past. More than 450 attackers such as digital currencies, networks, wallets etc. attempted to challenge the traditional institutes in earlier days. Fewer than 5 of them have survived to the date. Other than PayPal no one has really disrupted the banks.

But the time has changed. The modern markets and new generation banking customers are promoting the new age financial services. Various reports are suggesting that millennials are more faithful towards the Fintech companies than the traditional banks. The expectations of customers are on the rise, and it is favouring the Fintech companies. With the evolution of the digital economy, the rise is expected to continue.

In short, the transformative forces are seemingly unstoppable with the current social environments. The traditional banks need to elevate their digital experience to survive. However, a complete one-on-one competition between traditional banks and Fintech companies is not going to take place.

The Collaboration

The progress brought by the Fintech companies presents large opportunities for the traditional banking institutes. Rather than disrupting each other, a collaborative movement can benefit both banks and Fintech companies. Following are the few important ways how Fintech can be used to improve the banking services.

Reduced operational costs – The efficiency of staff and other elements can be increased through Fintech thereby reducing the operating cost.

Expansion – The limitations of the legacy systems can be overcome through the Fintech. This competitive advantage can be used to expand the organisation into foreign markets and new customer segments.

Revenue Growth – The Fintech can be used to scale the less capital-intensive business such as insurance and wealth management.

The Fintech also needs these collaborations to succeed. The regulatory challenges and difficulties with scaling the customer base are a great barrier for Fintech companies to overcome. Many researchers believe a “better together” policy is going to profit both players rather than a stealing business strategy.

Clearly, the young generation of banking customers is in need of a better digital experience. It has led the traditional banks to collaborate with these Fintech companies. With banking giants recognizing the potential of this new branch of technology, the demand for well-equipped experts is expected to reach new heights. You can prepare for this lucrative opportunity ahead through various Fintech courses available.

Top Talent Rushes to Join Domestic Investment Banks

Posted on by Imarticus Learning

In the last few months, a multitude of high ranking professionals has left their high paying jobs at international Investment banks to join domestic ones. Some prime example of this include Vikas Khattar, who after working with international firms like HSBC, Morgan Stanley, Jeffries, Merrill Lynch and Citi for over 20 years joined domestic banking firm Ambit Capital and Anjani Kumar who took the job of managing director at O3 Capital after 20 years of working at international banks like RBS, ABN Amro and CIMB Securities. Industry experts say that in total, over three dozen such professionals have joined domestic firms in the last one year.
There are various reasons why this has been happening. Of late, with domestic firms offering a lot of growth opportunities, the appeal of having a great job at international firms has gone down among executives. Clients nowadays are more inclined to work with Indian firms considering all the time and effort that they have put in recent years to understand the Indian market and construct meaningful relationships with Indian companies. Domestic Investment banks are now also building ties with international companies so that customers do not lose out on any services which until now they could have only gained from international companies.
When it comes to fees and incoming revenue, the amount of Investment banking courses done in India has grown substantially in the last three years. Indian firms have scaled up massively in terms of operations and deals being struck. As such, the scope for growth is much more in Indian banks when compared to international ones. This attracts a lot of executives from international outfits to join Indian ones instead.
The fact that international banks have significantly scaled down their operations in India over the last few years have also contributed to these migrations. On the other hand, many domestic firms are now a part of large conglomerates which offer a multitude of services to their customers. Stock prices and its related benefits have also been a big factor. Executives working at international firms often have a harder time reaping the benefits of their shares when compared to ones working for domestic firms despite international ones having a higher cash component. As such, domestic banks offer much better wealth creation opportunities to their employees. As operations by domestic firms continue to grow, so will the wealth creation opportunities for these executives.

Top Skills to Make Investment Banking Work for You as a Career Option

Posted on by Imarticus Learning

Many people aspire to become an investment banker. But, very few succeed even after pursuing investment banking certification courses. Those who have applied for an investment banking job knows how hard it is to crack one. Even if you completed investment banking certification courses, you need to have that perseverance to crack the job of an investment banker. If you don’t have that perseverance, then this career option may not be right for you. An investment banker must have some essential skills to crack the job. Here are some of those skills that you can work on to ensure that you will crack your next investment banking job interview.
Analytical Ability
Analytical skill is one such thing without which you cannot become an investment banker, and even if you do become with a fluke, you will not progress much. If you don’t have analytical skills, then you will not be able to present to the prospective client the detailed investment plan or business venture analysis. That is why you need to incorporate the analytical skills with the investment banking certification courses.
Communication and Presentation Skills
The very basic skill that an investment banker must acquire is the ability to communicate with the prospective clients and the ability to persuade them to buy the investment banker’s business proposition with a stunning presentation. You have to convince your clients to believe in your ideas, and that could be done with stupendous communication skills, and the things that will help you to make them fall for that idea is the way you present to them by using slideshows, documents or spreadsheets.
Leadership and Management Skills
As an investment banker, there will times when you might have to act like a leader, or sometimes the company might ask you to lead a project. At such a situation, you will have to manage everything that is going on with the project. That is why only pursuing investment banking certification courses are not enough when it comes to landing an investment banker’s job because the men sitting on that interviewer’s chair will be judging you on the merit of how you can lead a team and manage the whole work process.
Ability to Handle Tough Situations
In a career of an investment banker, you will not have smooth sailing all the time. There will be some high tides that will make your ship wobble. How do you react to those tough situations? Can you conquer those unfamiliar territories and come out victorious? This is something that every interviewer wants to see in an aspiring investment banker. They are not that much interested in how many investment banking certification courses you have completed, it’s your ability to handle the pressure that makes the difference.
Having an Eye of an Entrepreneur
If you want to be successful in your investment banking career, then you need to have an eye of an entrepreneur. This is a skill that no investment banking certification courses can teach you. You need to have the ability to bring out business opportunities in the most unusual areas where others would back off. When you don’t have that entrepreneurship skill, you will not be able to bring out such business ideas. That is why try to develop it even while pursuing investment banking certification courses.
The Bottom Line
Every company would want to hire an asset which will provide a dividend to their organisation. That is why you need to make yourself a productive asset which a company just cannot let go. In this way, there is nothing that can stop you from becoming a successful investment banker.

India’s Top Boutique Investment Banks

Posted on by Imarticus Learning

Boutique investment banks are a recent phenomenon and emerged more as an answer to the market-demands by startups and smaller enterprises. By small we mean deals less than Rs 200 Cr that large investment firms like JM Financial, JP Morgan, Goldman Sachs or Morgan Stanley find enviable.

Boutique Services:

Most large banks have large boards and payouts that make them cater to markets with large value and commissions of 0.5 to 2 % on value as their retainers. Small enterprises needing 10 to 100 Cr formed an encashable niche market for boutique investment firms who offered them the services the big banking investment firms refused.
A boutique investment firm will happily offer the same and maybe better services in the fields of fund-raising, bank debt, private equity, managing IPOs and advising on acquisitions, mergers and everything in between. From among the dozen or so firms that have grown overnight literally, we formed a watch-list.

Our Watch-List:

Our favourites on the watch-and-learn list are:
CV Subramanyam founded Veda Corp in 2003. Veda struck its first deal in 2004. They convinced Carlyle to partially buyout Newgen, a technology company for 10 million dollars. Since then there has been no looking back. They have done around 70 deals with a total business of 1.5 billion dollars. Veda is not very big and has a team size of 20 persons and offices in Bangalore, Hyderabad, Mumbai, and Chennai. They focus on South India where conservatism prevails, and businesses prefer to raise their funds in debt form rather than trade in equity.
Ripple Wave founders Mehul Savla and Vipul Shah started off in 2008. By May 2010 they had struck their first big deal. With over Rs 650Cr in just 3 business deals and a team of 4, this boutique investment service is going great guns.
MAPE started in 2001 by Jacob Mathews saw success in the same year. They have done business worth a whopping 3.5 billion dollars over 90 or so deals with a perhaps larger team size of 90.
The year 2008 saw Cogence Advisors founded by Rishi Sahai. Two months later they struck their debut deal. With a team size of 6, they have achieved 650 million dollars business over just 12 deals.
Equirius Capital also founded in 2008 by Ajay Garg had to wait till 2008 for their first successful deal closure. They have a volume of Rs 6,300 Cr in business over 52 deals and a team size of 20.
P2P set up its offices in India under Francois Montrelay. Their first deal came through in a few months in 2008 itself. Their business volume is over 100 million dollars and is single-handedly managed by Montrelay himself.
Conclusion:
Looking at our watch list, we find that if the big investors don’t wake up, they’ll find themselves edged out of the lower end (and small financing markets) by such boutique firms who are lean enough to make high profits on smaller deals. Money earns more money they say!
 
Reference:
economictimes.indiatimes.com/articleshow/30183390.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
https://www.businesstoday.in/magazine/cover-story/boutique-investment-banks/story/185848.html

What is the Big Challenge of Shadow Banking in India today?

Posted on by Imarticus Learning

Any investor with a semblance of market awareness would know by now about the hits that the Banking Sector has received. The NPAs truly brought to light some deep fractures in the banking practices currently, and it resulted in a reduction in the value of the stocks of many prominent banks.

However, owing to some corrective measures taken by the Reserve Bank and a change in the overarching structure, the banking sector has since been recovering from this fall.

However, these NPAs which are being addressed are only those that have been in possession of banks – the NBFCs are not included, in most cases. NBFC or Non-Banking Financial Companies are also in the same business of lending and borrowing, akin to banks in that respect. The NPAs in possession of these NBFCs also tend to have deep implications on market health and the economy.

Recently, the debt default by the IL&FS brought forth the depth of the financial risk that India’s NBFCs pose to the economy. IL&FS, or Infrastructure Leasing and Financial Services is actually a conglomerate which deals with financing and developing various infrastructure projects in the nation. This mini-crisis has worsened the capital adequacy and has contributed to the credit crunch happening today in India.

Many growing sectors were heavily dependent on NBFCs for credit, and these even include established sectors like Real Estate and the likes. Recently, a report by the Investment Banking Company Credit Suisse stated that the exposure of the NBFCs to an assortment of real estate companies could be as much as Rs. 20,000 Crores. This led to a downfall of the shares of Real Estate companies, and the economy was affected too.

The issue is that Banks is still reeling from the NPA issue that hit them head on, and are currently unable to neither increase the interest rates on their loans nor lend more to those real-estate companies that are looking for credit. This led to NBFCs taking the mantle, and this phenomenon is known as ‘shadow banking’. In India, the shadow banking sector of the lending agenies appears to be larger than that of the banks, which can have dire consequences in the economy of the nation too.

If you are interested in understanding more about the issue and about investment in general, take a look at the investment banking courses available on Imarticus Learning!

Unravelling The Reasons For The Current Liquidity Crunch for the NBFCs

Posted on by Imarticus Learning

 
Infrastructure Leasing and Financial Services (IL&FS), a leading blue-chip infrastructure lender recently made a default on their short-term debt payment. This incident has produced a ripple effect and resulted in a rough patch for the Indian Non-Banking Financial Companies (NBFCs). Concerns over NBFCs repayment ability are preventing the market lenders from releasing funds to this sector.
The Crisis
When the IL&FS group defaulted on payments, several corporates, insurance companies and mutual funds were also in trouble. These companies had invested in the short-term instruments of IL&FS group such as non-convertible debentures and commercial papers. These borrowings add to nearly ₹63,000 Crores according to their balance sheet. In this money, a large share is expected to be of NBFCs. Nearly ₹2 Trillion of NBFCs and HFCs (Home Finance Companies) debt is due for recovery by the end of this year. These two facts have stoked fear among the lenders about NBFCs ability to pay their dues. The result was a liquidity squeeze crisis among the NBFCs.
How Did It Happen?
Most NBFCs acquire short-term loans from the market lenders and provide long-term loans to their customers. Obviously, this leads to a mismatch in the duration of liabilities and assets. In normal days, NBFCs stick to refinancing their current debts to a new short-term debt. This style of operation always posed a certain level of risk to the companies. Such risk is greater when the lenders are feared. In the current crisis situation, this fear is present and the companies are unable to roll over their debts.
RBI’s Role
The reserve bank of India was blamed for a late stepping-in and injection of funds. RBI announced that they will inject ₹40,000 Crore into the system by buying government securities on top of the ₹36,000 crore they injected through the open market operations in October. But the RBI refused the notion for a special window for the NBFC sector pushed by the industry and the government. RBI argued that there is enough liquidity available for the sector through the banks.
The Future of NBFCs
The current scenarios suggest that the funding for NBFCs will remain tight. The borrowing costs for these companies are expected to grow higher following the recent adverse sentiment in the bond market. That means reduced growth and margins ahead. Also, the guidelines for these companies are likely to be tighter and closer to the commercial banks in terms of regulations. Since the 2008 crisis, RBI has urged tighter prudential norms for NBFCs. With the government showing enthusiasm to prevent an escalation of the crisis, RBI will neutralise the current liquidity squeeze. Few scholars believe that as a last resort government will act as a lender and bailout the companies. However, such bailouts will further inspire NBFCs to continue to provide long-term loans with their short-term debts and expect the government to save them when they get in trouble.
Even though the crisis is expected to settle soon, many analysts believe that the easy money-making period of this sector is not coming back soon.