Individual Pain Points or Tell-tale Signs of a Systemic Challenge? Learnings from Altico Housing Finance

Non-banking financial companies (NBFCs) have stayed in the shadows for far too long and played second fiddle to mainstream banks in India. NBFCs or shadow banks, as they are also called, are highly significant for the economy’s growth. However, due to their high vulnerability and susceptibility towards high risk and losses, they have predominantly existed in the shadows of the country’s financial sector and have not come out in the limelight. Moreover, this is not without reason. The recent meltdowns of big corporate houses such as Infrastructure Leasing & Financial Services (IL&FS), Dewan Housing Finance Ltd (DHFL) and Reliance Capital have cast numerous questions about the credibility and genuineness of shadow banks in India. Given such a scenario, the entire shadow banking industry was subject to strict surveillance by the regulator to strengthen the overall financial ecosystem. After the chaos in September 2019, Altico Capital India Ltd, an $800 million realty-based capital-backed housing finance company, surrendered its licence to the Reserve Bank of India (RBI), projecting its incapability to run the business. The company had defaulted on a $91.99 million payout to a Dubai-based bank, followed by defaults to other lenders in the same year. As a result, SSG Capital, a Hong Kong-based company, acquired Altico’s bad debts with a 50% haircut to save the company. It was extremely unfortunate for the overall financial sector, and particularly the NBFC sector, that Altico was not the only company in this situation. Multiple other entities are contemplating liquidating or opting for a resolution plan to ensure a safe exit from their present debt-ridden situation. It is high time now to address the concerns of the NBFCs, rescue them from an early-stage crisis, and rescue the overall financial sector from further drowning before the situation turns out of control.