<p>The economic survey has said a health score for the shadow banks can help the sector, as the sector has been going through a prolonged cash crunch.</p>.<p>"A new diagnostic Health Score developed for the Non-Banking Financial Company (NBFC) and Housing Finance Company (HFC) sectors can help detect early warning signals of impending liquidity problems facing the companies in this sector," the survey said.</p>.<p>Till now, two companies, both fraud hit -- Infrastructure Leasing & Financial Services (IL&FS) defaulted on their payments in the period from June to September 2018, while Dewan<br />Housing Finance Limited (DHFL) did so in the period from June to August 2019. Both entities defaulted on non-convertible debentures and commercial paper obligations for amounts of approximately Rs 1,500-1,700 crore.</p>.<p>Using a novel scoring methodology, quantifiable Rollover risk is calculated for the HFCs and the retail NBFCs. The Economic Survey 2019-20 presented by Union Minister for Finance and Corporate Affairs, Smt Nirmala Sitharaman in Parliament today gives a detailed analysis of this new methodology including its reliability in predicting financial health of NBFC and HFC firms. The Health Score can be used as a valuable tool to introduce corrective measures to address unfavourablefinancial trends in a timely manner, says the Pre-Budget survey.</p>.<p>The Health Score proposed is based on the rollover risk which includes Asset Liquidity Management risk, interconnectedness risk and Financial and Operating Resilience of an NBFC.</p>.<p>The Economic Survey analysis further shows that the Health Score for the HFC sector exhibited a declining trend post 2014. By the end of FY 2019, the health of the overall sector had worsened considerably. Similarly, the Health Score of the Retail-NBFC sector was consistently below par for the period 2014 till 2019.</p>.<p>On one single day -- June 4, 2019 -- the net asset value of debt funds, which held debt instruments issued by the stressed NBFCs, fell by 53% in one day when news about its default became public.</p>
<p>The economic survey has said a health score for the shadow banks can help the sector, as the sector has been going through a prolonged cash crunch.</p>.<p>"A new diagnostic Health Score developed for the Non-Banking Financial Company (NBFC) and Housing Finance Company (HFC) sectors can help detect early warning signals of impending liquidity problems facing the companies in this sector," the survey said.</p>.<p>Till now, two companies, both fraud hit -- Infrastructure Leasing & Financial Services (IL&FS) defaulted on their payments in the period from June to September 2018, while Dewan<br />Housing Finance Limited (DHFL) did so in the period from June to August 2019. Both entities defaulted on non-convertible debentures and commercial paper obligations for amounts of approximately Rs 1,500-1,700 crore.</p>.<p>Using a novel scoring methodology, quantifiable Rollover risk is calculated for the HFCs and the retail NBFCs. The Economic Survey 2019-20 presented by Union Minister for Finance and Corporate Affairs, Smt Nirmala Sitharaman in Parliament today gives a detailed analysis of this new methodology including its reliability in predicting financial health of NBFC and HFC firms. The Health Score can be used as a valuable tool to introduce corrective measures to address unfavourablefinancial trends in a timely manner, says the Pre-Budget survey.</p>.<p>The Health Score proposed is based on the rollover risk which includes Asset Liquidity Management risk, interconnectedness risk and Financial and Operating Resilience of an NBFC.</p>.<p>The Economic Survey analysis further shows that the Health Score for the HFC sector exhibited a declining trend post 2014. By the end of FY 2019, the health of the overall sector had worsened considerably. Similarly, the Health Score of the Retail-NBFC sector was consistently below par for the period 2014 till 2019.</p>.<p>On one single day -- June 4, 2019 -- the net asset value of debt funds, which held debt instruments issued by the stressed NBFCs, fell by 53% in one day when news about its default became public.</p>