Why India's biggest investors in shadow bank debt are getting cold feet

India's biggest investors in shadow bank debt are getting cold feet, spelling more trouble for the hard-hit sector.

Mutual fund investments in commercial paper and bonds that mature within 90 days dropped to 3.24 trillion rupees ($46.5 billion) at the end of March, the lowest in six quarters, data from the securities regulator show. The fallout from shock defaults last year by IL&FS Group continues to make it more difficult and costlier for companies in the sector, particularly weaker players, to access funding.

India’s non-bank lenders are selling stakes or raising funds by disposals or securitizations of more loans as the central