NBFC Crisis: Liquidity Crunch Has Spilled Over To Real Estate, Construction Companies

The NBFC crisis is sending shivers down the financial eco-system of the country. In an interview with Outlook Money, Santanu Agarwal, Chief Innovation Officer (CIO), Paisalo Digital, elaborated how the real estate and construction companies are bearing the brunt of the crisis.

1. Experts fear that dearth of funds in the NBFC sector can spillover to the real estate and construction company. Do you also fear so?

Yes, the liquidity crisis has spilled over to the real estate and construction sector. Real estate sector is suffering due to significant drop in loan funding by Housing Finance Companies to the buyers, and since both real estate and construction are interconnected as funds from real estate projects propel growth in construction companies the effects of liquidity crunch are being increasingly seen.

Construction companies are an extremely important part of economic growth. In a developing nation the mother of employment and income generation for the general population comes from these sectors, but due to lack of liquidity in the country these sectors are in an outright turmoil. 

Not only the real estate and construction space, the effects of significant liquidity crisis is now been seen in the consumer durables sector as started by the 18-year low in auto sales. 

2. Do you see a government clean up for the sector coming up anytime soon?

The country does not require a clean up, it is not a solvency or cleaning issue; only a liquidity issue. Once the government realises that in order to achieve the welfare of the Indian citizens and to ensure continued growth, development and evolution of the Indian economy is necessary; continuous liquidity is as important as effective legislation and maybe then effective measures will be undertaken to restart the capex cycle by infusing the necessary liquidity into the economy and thereby resolving the paralysed economy and capex cycle. 

Hopefully with liquidity infusion, India will be back on track to achieve the $5 trillion mark and expect surge in self-employment, job creation and business development. 

3.  Do you see NBFC sector rebounding any time soon?

The NBFC sector will rebound the moment liquidity is infused into the economy, and it will not just be another rebound. It will be a rebound where the companies having excess load will start to reduce unnecessary exposure and will make effective and efficient decisions. 

4. Are all NBFC companies impacted by this crisis?

Not all companies classified as NBFC are affected, it is largely the Housing Finance Companies that are affected.