Slumping bond sales indicate waning trust in India shadow banks

By Divya Patil

Waning investor confidence in India’s troubled shadow lenders is sapping demand for corporate debt.

Companies sold 1.2 trillion rupees ($17.3 billion) of bonds so far in the April-June period, down 57 per cent from the previous quarter and the weakest since the year-ago period, despite the decline in borrowing costs, according to data complied by Bloomberg.


Liquidity risk in the nation’s credit markets roared back this month after non-bank financier Dewan Housing Finance Corp. delayed bond interest payments, a sign of stress in the sector that has persisted since IL&FS Group defaulted last year.

The crisis has hit demand for cars to appliances, bulk of which were financed by shadow banks, and contributed to the slowdown in the economy.

“There’s a crisis of confidence among investors,” said Rajeev Radhakrishnan, head of fixed-income at SBI Funds Management.

“A prolonged period of liquidity crisis, which if unresolved, can potentially lead to solvency issues and the impact won’t be isolated to specific entities given the inter-linkages.”