What caused a rout in financial sector stocks
Live MintThe worst liquidity crunch in India’s banking system in more than two years is adding to refinancing risks for shadow banks shaken by a rare default in the country’s money markets. That’s making for a double whammy, as central bank steps to prop up a weakening rupee have sopped up liquidity and as recent corporate tax payments had already left less cash in the financial system. Refinancing risks are rising at such lenders, adding to broader unease as the banking system battles the world’s highest bad debt ratio after Italy, according to Moody’s Investors Service’s India unit. “Non-bank lenders, which are heavily dependent on market borrowings, are likely to face rollover and repricing risks.” Liquidity in the financial system is currently at a deficit of around ₹ 1.4 trillion, according to the Bloomberg Economics India Banking Liquidity Index, having moved from a surplus of ₹ 58,000 crore earlier this month.