But all is not lost, and this crisis—like the earlier ones—has a silver lining. For example, the 1991 economic crisis, precipitated by the faulty economic policies of the previous governments and crude oil prices touching record levels because of the Gulf War, led to double-digit inflation and unsustainable debt levels. When P.V. Narasimha Rao took over as prime minister on June 21, 1991, India’s foreign exchange level had shrunk to cover only two weeks of imports, when it should have been six times that amount. This led to structural reforms, which included abolition of all industrial licensing other than those of strategic or environmental importance; pruning of industries reserved for the public sector from 18 to 8; abolition of import controls on intermediate and capital goods and components; and phased reforms of direct and indirect taxes, etc. Similarly, the bad loans crisis of 2013-14 led to the RBI ordering an asset quality review of banks, and the implementation of the Insolvency and Bankruptcy Code.

These trying times will force the NBFC sector and the ecosystem it supports to shape up, experts say. It will make them more transparent and sustainable. The severity of the crisis has forced the government and the RBI to intervene nearly 14 times in the past two months. A recent report by Antique Stock Broking explains that the interventions were “two-pronged”. While one set looked at providing more funds for liquidity-strapped NBFCs, the other “aimed at overhauling the regulatory framework to ensure a healthy future”. Says Digant Haria, one of the co-authors of the report: “While regulations around leverage, ALM [asset-liability management], and liquidity management could ensure some short-term pain, they will ensure healthier functioning of NBFCs in times to come.”

It has not only brought about significant changes in the policies of the government and those of the regulators such as the RBI and the Securities and Exchange Board of India (SEBI), but has also changed the way credit rating agencies, audit firms, and independent directors on the boards of these companies function.

The government began its reform agenda by allowing the RBI to regulate troubled housing finance companies, taking them out of the purview of the National Housing Bank. Today, the central bank can supersede an NBFC’s board, suspend the executive management of the company, and order an asset quality review—putting these entities on a par with banks. “These measures will not only ensure greater scrutiny and monitoring by the RBI, but also put the NBFC sector on a far stronger footing,” says Amir Ullah Khan, professor of economics at Hyderabad-based NALSAR University of Law. Second, to ensure greater liquidity for the better-run NBFCs, banks have been allowed to increase their exposure limit to a single borrower from 10% to 15%. Such a measure will not only release nearly ₹15,000 crore in the market for NBFCs, but also allow the more robust entities to borrow more from banks. Third, risk-weight guidelines—the money that these companies need to keep aside in case of a crisis or some unfortunate event—too has been harmonised. Firms will now be assigned a risk weight depending on their credit rating—those with a higher credit rating will have to keep aside a lower amount, while those with lower ratings have to maintain a bigger security cover.