Pressure Mounts For India NBFCs As Reliance Capital Exits Lending Business

India currency

India-based financial services provider Reliance Capital has announced it will exit the lending market.

Anil Ambani , group chairman of the non-bank financial company (NBFC), revealed the firm’s plans on Monday (Sept. 30), Reuters reported, noting that the company is struggling to overcome “collateral damage” resulting from a slowing national economic and a broader “crisis,” the publication said, in India’s lending sector.

Reports also noted that analysts first sounded the alarm on Reliance earlier this year when auditors raised concerns over ambiguity in the firm’s accounting practices and related party transactions. While the company will continue to operate in the asset management and general insurance spaces, Reliance shrunk its footprint by lowering its ownership in Reliance Nippon Life Asset Management from about one quarter to just over 4 percent.

Following Ambani’s announcement, shares in Reliance Capital dropped to their lowest level in two decades. Since their highest level in January 2008, reports said, shares have lost about 99 percent of their value.

“It is unfortunate that during all this noise, the true value of our business has not been recognized,” Ambani said.

Reliance Capital offers loans to small and medium-sized businesses (SMBs) via its Reliance Money unit, while its Reliance home finance operation offers loans to home buyers. Combined, these operations made up an estimated 15 percent of the company’s revenue in the most recent fiscal year, according to reports.

India’s NBFC community is in flux amid tightening regulations as the government looks to promote customer protections and risk mitigation while maintaining broad access to financial services.

Last month Bloomberg reported that NBFCs in India have issued $1.5 billion in foreign loans so far in 2019, down from $2 billion during the same timeframe a year prior. Reports at the time noted that regulators are hearing more calls for tighter regulations on NBFCs to protect economic growth and stability, with analysts pointing to a rise in defaults and rating cuts as adding uncertainty to the market.