The Economic Survey 2019-20 says the problems faced by the NBFCs stemmed from their over-dependence on short-term wholesale funding from the liquid debt mutual funds. "While such reliance works well in good times, it generates significant risk to NBFCs from the inability to roll over the short-term funding during times of stress. An asset-side shock not only exacerbates the Asset Liability Management (ALM) problem but also makes investors in LDMFs jittery and thereby leads to a redemption pressure that is akin to a “bank run.” This run on Liquid Debt Mutual Funds then precipitates the refinancing (rollover) risk for NBFCs and further exacerbates the initial problems caused on the asset side," stated the survey.
Health, life insurance premiums need a tax cut? GoM to meet on October 19
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