Health index can signal early signs of liquidity risks in NBFC sector

There is a shift in funding sources for NBFCs at present

Usage of the Health Score index by regulators can detect early signs of impending liquidity risks in the shadow banking sector. Downtrends in the index can be used to trigger greater monitoring of non-banking financial companies (NBFCs). The health score of the housing finance sector after 2014 exhibited a declining trend and it had worsened by 2019. Similarly, the retail-NBFC index was consistently below par from 2014 to 2019.

The Survey found that NBFCs raise capital from the commercial paper (CP) market at lower cost and face risk of rolling over the CP debt at short frequencies. Since liquid debt