Fear of contagion looms over financial sector after DHFL's payment default

Nomura analysts said the Reserve Bank of India and the government would need to segregate the potential solvency issue at DHFL from liquidity issues at other larger wholesale NBFCs and HFCs

The latest default on interest payments by Dewan Housing Finance Corporation (DHFL) can accentuate contagion risk in India's financial sector as banks, pension and mutual funds, and insurance companies together have an exposure of around Rs 1 trillion to the company, warn analysts. It is crucial, they say, the company sell its assets in time and the government steps in to prevent the DHFL contagion from spreading to other financial firms.

“This default could accentuate contagion risk in the financial sector (in the backdrop of IL&FS’ default last year), leading to higher costs and polarisation of funds to better-rated NBFCs —