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Title: Financial fragility in housing finance companies
Authors: Anshuman, V Ravi 
Sharma, Rajdeep 
Keywords: Shadow banking;HFC;Liquid debt mutual funds;Rollover risk;Redemption risk;Short-term wholesale funding;Asset liability mismatch;Financial and operating resilience;Health score;Cumulative abnormal returns
Issue Date: 2020
Publisher: Indian Institute of Management Bangalore
Series/Report no.: IIMB Working Paper-605;
Abstract: This study examines the financial fragility of the Non-Banking Housing Finance Companies (HFCs) sector. We show that the liquidity crunch in HFCs stemmed their over-dependence on short-term wholesale funding. While such reliance worked well in good times, it generated significant short-term debt rollover problems for HFCs during times of stress. The root cause of the inability of HFCs to roll over commercial paper (CP) subscribed by the Liquid Debt Mutual Fund (LDMF) sector was the exacerbation of the ALM problem due to asset side shocks. Anticipating defaults, investors in the CP market resorted to excessive redemptions, which, in turn, exacerbated the rollover risk of HFCs. We develop a robust tool (Health Score) to estimate financial fragility in an HFC and find that it can predict the constraints on external financing (or rollover risk) faced by these firms.
Appears in Collections:2020

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