IL&FS mess: India's shadow banks run out of options, sell bonds to public

Mutual funds and institutional investors are still wary of lending to non-bank financiers, and tighter market liquidity has weighed on company ratings, which deteriorated at the fastest pace in 6 yrs

Faced with high borrowing costs and a sustained shortage of liquidity in India’s money markets, shadow banks are increasingly pitching bonds with high coupon rates to the public, who may not be aware of the risks they’re taking on.

Still roiling from the shock of defaults at Infrastructure Leasing & Financial Services Ltd., non-bank financing companies are exploring this relatively expensive funding channel. Mutual funds and institutional investors are still wary of lending to non-bank financiers, and tighter market liquidity has weighed on company ratings, which have deteriorated at the fastest pace in six years.