Credit-rating Reforms on the Anvil: The Case of Credit Default at Altico Capital in India
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Abstract: Altico Capital, a systemically important non-deposit taking non-banking finance company (NBFC) registered with Reserve Bank of India (RBI), defaulted on nearly $2.8 million interest payment to Dubai-based Mashreq Bank on September 12 2019. The realty-focused non-banking lender which had borrowed to the volume of $ 625 million, primarily from banks, was facing liquidity woes because of its large-scale exposure to the down trending real estate market in India. The liquidity situation of Altico Capital was exacerbated because of prepayment of loans made to a couple of lenders to avoid high interest rate reset and loan-recall notices received from other lenders. The fallout of this crisis was seen in the form of a debate over the credit rating system in the country which is unable to detect stress in time. This case study draws suggestions to bring about reforms in the credit rating system in India.
Keywords: India, Altico Capital, NBFC, Credit Default, Liquidity Risk, Credit Rating
JEL Classification Number: G18, G24
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