RIPPLE EFFECT OF THE IL&FS CRISIS

Abstract

Non-Banking Financial Companies (NBFC) are those financial institutions which cater to the demand of those customers whom banks think as sub-prime. In India these companies referred to as NBFC are currently very vulnerable and it is a concern for both RBI as well as the government. The major reason for the concern is the 2019 crisis in the NBFC sector. The crisis which ended in late 2019 was not an overnight event. The worsening of the conditions of NBFCs started in the mid-2018 and gradually deteriorated. The whole crisis timeline can be divided in 2 parts. The first part being the period in which the uncovering of the situation happens and the second part is the actions taken against the defaulters and measures to revive the sector. In this paper we have done an event study of the announcements made during the first period which showed the uncovering of crisis.  The major announcements which took place in that period were considered and how those announcement affected the stock price of the related companies. The reason for doing this study was to assess the ripple effect of an announcement of one company on the company, industry and economy as a whole.