Non-banking financial company

A lender that is not a bank, funding itself in the wholesale market rather than from retail deposits, and lending at a spread.

The model has real advantages. Non-bank lenders reach borrowers banks find hard to underwrite, operate with lower regulatory overhead in some respects, and can specialise deeply in one asset class.

It also has one structural vulnerability that has repeatedly proved fatal. Without a deposit franchise, funding depends on markets that close precisely when credit conditions deteriorate. A lender borrowing short and lending long fails when refinancing stops, regardless of how good its loan book is.

Indian regulation requires a minimum capital adequacy that is higher than for banks, which is a partial answer to a funding risk rather than a solution to it.

Read the liability side first. That is where these companies die.