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Not just liquidity: on NBFCs crisis

Policymakers must address the structural problems behind the NBFCs crisis
The default of Infrastructure(आधारिक संरचना/पूर्वावश्यकता )Leasing & Financial Services (IL&FS) on several of its debt obligations(दायित्वों/कर्तव्य) over the last couple of months has raised serious questions about how regulators missed the growing(बढ़ता हुआ) debt(ऋण ) pile(ढेर/लादना) of a systemically important financial institution. But apart from the obvious(ज़ाहिर/स्पष्ट/प्रत्यक्ष) failure of regulators to do their jobs, the IL&FS saga has also exposed(खुलासा किया/निरावरण) the underlying weaknesses in the non-banking financial company (NBFC) sector as a whole which has depended heavily on low-cost, short-term debt financing to sustain(संभालना/जीवित रखना) its shaky(कमजोर/अस्थिर) business model. As both international and domestic interest rates continue to rise, the stocks of NBFCs have been punished as investors(निवेशकों) expect the profit margins of these companies to come under pressure as their borrowing(उधार/कर्ज लेना) costs rise. Then there is the further, and more serious, risk of NBFCs being unable(असमर्थ) to roll over their short-term debt in case of a severe(गंभीर/तीव्र) credit crunch(संकट/कमी) in the aftermath of the IL&FS saga. Both these factors have combined(संयुक्त) to put an end to the dream run of NBFCs, which have enjoyed high valuations amidst(मध्य में/साथ में) rapidly(शीघ्रता से) growing profits over the last few years. The precipitous(तेज़/शीघ्र) crash(दुर्घटना/टक्कर) of shares of Dewan Housing Finance Ltd. has been the defining(निर्णायक) moment(क्षण) of the present crisis(संकट). It is worth noting that the rise of NBFCs was fuelled primarily(मुख्य रूप से) by the demise(गिरावट/पट्टा करना/निधन) of traditional banks which have been unable to lend(उधार देना/कर्ज़ देना) as they were bogged down(उलझ गए ) by non-performing loans. Meanwhile, NBFCs with strong pricing power, which can somehow successfully achieve the transfer of higher borrowing rates to their own borrowers, may still survive rising interest rates.

The response of policymakers to the ongoing crisis, which seems warranted if its purpose is to prevent(रोकना/प्रतिबंध करना) a wider systemic crisis, is fraught(भरा हुआ) with other risks. The Reserve Bank of India, the National Housing Bank and the State Bank of India last week decided to increase the supply of liquidity in the market to keep interest rates under control. The RBI has also urged(आग्रह किया/प्रेरना करना) NBFCs to make use of equity rather than debt to finance their operations. This is apart from the government’s decision to replace IL&FS’s management and commitment(प्रतिबद्धता) to providing(प्रदान करने) the company with sufficient liquidity. While offering easy money may be a welcome measure in the midst of the ongoing liquidity crisis, the prolonged(लंबी) supply(आपूर्ति) of low-cost funds to the NBFC sector also creates the risk of building an unsustainable(अस्थिर/अरक्षणीय) bubble in various(विभिन्न/विविध) sectors of the economy. Defaults associated(संबंधी/जुड़े) with any such bubbles will eventually(अत में/फलतः) only affect(प्रभावित करना) the loan books of lenders(ऋणदाता/उधार देनेवाला).State bailouts(राहत पैकेज) could also fuel the problem of moral hazard(जोखिम/खतरा) as other financial institutions may expect a similar lifeline in the future. Policymakers should thus try to focus on taking steps to address structural problems that contributed(योगदान/अंशदत्त ) to the crisis. This includes steps necessary to widen the borrower base of NBFCs which have been banned from accepting deposits. This would allow NBFCs to tap into more reliable(विश्वसनीय) sources of funding and avoid similar liquidity crises in the future.


Important Vocabulary

1.Exposed(खुलासा किया/निरावरण)
Synonyms: bare, defined, disclosed, discovered, naked
Antonyms: clothed, hidden, ambiguous, blocked, closed

Synonyms: insecure, jittery, nervous, precarious, rickety, rocky,
Antonyms: brave, certain, confident, definite, firm

3.Sustain(संभालना/जीवित रखना)
Synonyms: assist, bolster, buoy, continue, defend
Antonyms: harm, hinder, hurt, obstruct, stop

Synonyms: accountability, agreement, bond, burden, commitment
Antonyms: asset, disagreement, disbelief, irresponsibility, misunderstanding

Synonyms: accumulation, assortment, chunk, hill, hunk
Antonyms: ditch, hole, poverty

6.Borrowing(उधार/कर्ज लेना)
Synonyms: financing, renting, accepting a loan
Antonyms: loaning

Synonyms: abrupt, craggy, dizzying, sharp, arduous
Antonyms: calm, flat, kind, nice, gradual

Synonyms: characterize, construe, decide, delineate, describe
Antonyms: confuse, hesitate, hide, misrepresent, obscure

Synonyms: harsh, relentless, serious, strict, astringent
Antonyms: kind, amenable, calm, compromising, easy

10.Bogged down(उलझ गए ) 
Synonyms: halt, hang up, impede, stall, decelerate
Antonyms: advance, forward, help

11.Demise(गिरावट/पट्टा करना/निधन) 
Synonyms: collapse, departure, dissolution, downfall, extinction
Antonyms: accomplishment, beginning, rise, start, success

12.Fraught(भरा हुआ)
Synonyms: charged, filled, replete, abounding, attended
Antonyms: empty

Synonyms: engagement, guarantee, need, pledge, promise
Antonyms: break, breach, irresponsibility, broken promise, denial

14.Urged(आग्रह कियाप्रेरना करना)
Synonyms: adopted, advanced, aided, approved, backed
Antonyms: disapproved, discouraged, condemned, opposed, prohibited

Synonyms: decent, decisive, dependable, good, honest
Antonyms: bad, broken,, corrupt, dishonest, evil

16.Contributed(योगदान/अंशदत्त ) 
Synonyms: add, commit, devote, give, grant
Antonyms: hold, keep, take, disagree, receive

Synonyms: peril, risk, threat, dynamite, endangerment
Antonyms: safety, assurance, certainty, determination, fact

Synonyms: assorted, different, discrete, disparate, distinct
Antonyms: alike, combined, connected, joined, like

Synonyms: avert, avoid, bar, block, counter
Antonyms: advance, aid, allow, approve, assist




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