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The BSE Sensex crashed up to 1,500 points on Friday. Photo: HT
Mumbai: Market and banking regulators in India issued a rare joint statement last Sunday, saying they are closely following the financial markets and will take appropriate action, if necessary, to ensure their smooth operation. "The Reserve Bank of India and the Securities and Exchange Board of India are keeping a close eye on recent developments in financial markets and are ready to take appropriate action, if necessary," the statement said.
The regulators' decision to calm investors comes after BSE Sensex's benchmark index dropped nearly 1,500 points on Friday following a rumor of default by mortgage lender Dewan Housing Finance Ltd (DHFL) and in Les Other financial stocks also fell after the rumors, but then recovered some of their losses after DHFL denied failing on its payments.
State Bank of India chairman Rajnish Kumar also intervened to reassure investors Sunday, saying the liquidity of mortgage lenders did not cause any concern. Friday's collapse of home equity stocks was attributed to fears of tight liquidity and potential systemic risk from exposure to II & FS.
Regulators seem to be concerned about the links between different financial institutions in the system and whether real or perceived flaws can lead to systemic contagion. The complex interconnections of the financial system make all agents vulnerable in the event of a single player's failure. This systemic risk can stop the entire financial system.
Separately, BloombergQuint reported Sunday that a deputy governor of the Reserve Bank of India will likely meet with the shareholders of IL & FS on September 28 to discuss the group's recent failures. The agenda for the meeting will include a discussion of the capital injection plan that shareholders will resume on September 29 at the company's annual general meeting, the report said.
However, no confirmation of this meeting was made when mint conducted independent surveys of SBI and Housing Development Finance Corp. Ltd (HDFC), both shareholders of IL & FS.
The banking regulator has already launched a special audit of IT & FS after failing on its inter-company deposits from the Small Industries Development Bank of India.
On Friday, Ramesh Bawa, general manager of IL & FS Investment Managers, a unit of IT & FS, resigned. On the same day, the non-bank financial company told the stock exchanges that it had failed a letter of credit to IDBI Bank Ltd.
mint reported on September 21 that the shareholders of IL & FS are working on the sale of a majority stake in its financial services unit and additional assets worth 4,500 crores for repay your debt.
IL & FS also asked the government to clear dues of up to ₹ 16,000 for the work done by the company. IL & FS hired SBI Capital Ltd to find an investor for a majority stake in the IL & FS Financial Services unit, according to the report. On September 17, the ICRA rating agency downgraded the credit rating of IL & FS in default.
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