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    NBFCs borrowed short-term loans and lent them for long-term projects but faced cash flow issues when projects were delayed, exacerbated by lending to unethical developers. As NBFCs could no longer repay lenders due to dried cash flows, a government panel tried to recover money by selling off assets of affected groups. The crisis emerged from NBFCs' timing mismatch of short-term borrowing and long-term lending, worsened when a major NBFC mismanaged funds and defaulted on repayments, scaring away investors from rolling over NBFC debt.

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    NBFCs borrowed short-term loans and lent them for long-term projects but faced cash flow issues when projects were delayed, exacerbated by lending to unethical developers. As NBFCs could no longer repay lenders due to dried cash flows, a government panel tried to recover money by selling off assets of affected groups. The crisis emerged from NBFCs' timing mismatch of short-term borrowing and long-term lending, worsened when a major NBFC mismanaged funds and defaulted on repayments, scaring away investors from rolling over NBFC debt.

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    17 views1 page

    Scribd Download

    Uploaded by

    Akshita Shrivastava
    NBFCs borrowed short-term loans and lent them for long-term projects but faced cash flow issues when projects were delayed, exacerbated by lending to unethical developers. As NBFCs could no longer repay lenders due to dried cash flows, a government panel tried to recover money by selling off assets of affected groups. The crisis emerged from NBFCs' timing mismatch of short-term borrowing and long-term lending, worsened when a major NBFC mismanaged funds and defaulted on repayments, scaring away investors from rolling over NBFC debt.

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    of 1

    NBFCs borrowed short term loans from banks and mutual funds.

    Along with which they


    were lending to developers of long-term projects. It got held up because of various factors.
    They also lent to unethical developers and wilful corporate defaulters. As cash flows dried
    up, NBFCs couldn’t repay their lenders. A government-appointed panel tried to recover the
    money by selling assets of the group.

    The major reasons behind this crisis were-


    1. Timing Mismatch: NBFCs have been borrowing money short term and have been
    lending it out long term. The problem started when IL&FS, i.e. one of the NBFC’s
    mismanaged its funds. As a result, it is now not able to pay back its creditors. The end
    result is that IL&FS stands exposed, and so does this faulty business model of the
    NBFCs. Since the IL&FS panic has scared the investors away, the NBFCs are not
    able to issue new debt in order to roll over the old debt.

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