3 highlights
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As Arvind Subramanian and Josh Felman write in a working paper, India’s Great Slowdown, published in December 2019: “In recent years most of the incremental lending has come from NBFCs, so much so that by 2018-19, NBFCs accounted for about half of the ₹5 lakh crore (trillion) in real estate loans outstanding.”
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As Subramanian and Felman write: “This funding was provided on the assumption that developers would be able to complete their projects, sell off their inventories, and then repay.” The inventory of unsold homes of builders continues to run into hundreds of thousands. People are not willing to buy these homes at prices set by the builders.
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In this scenario, if real estate companies don’t pay up NBFCs, the latter won’t be able to repay banks. Hence, an NBFC crisis might turn into a banking crisis, something RBI would like to avoid