Update: IL&FS has confirmed it is unable to service its obligations in respect of interest payment of the Non-Convertible Debentures, which was due on September 21, 2018.

The fear of contagion has spread across the banking sector and up into India’s sovereign risk, now at 18-month highs…

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Turmoil broke out in a relatively stable corner of the global market overnight, when “volatility erupted” in India’s stock market on Friday, after plunges in Yes Bank and Dewan Housing Finance set off an exodus from financial shares and slammed the broader stock market. Yes Bank sank to the lowest level since 2016, losing 30% of its value in one day, after India’s banking regulator refused to extend the tenure of the lender’s chief executive officer,” while Dewan tumbled 43% for its steepest loss on record, Bloomberg reported.

“IL&FS’ problem and Yes Bank’s issues are impacting every financial stock in the market,” A K Prabhakar, head of research at IDBI Capital Market Services Ltd., said by phone. “Leveraged positions are being reduced.”

As a result, the benchmark S&P BSE Sensex plunged, swinging from a 1% gain to a drop of as much as 3% – its wildest intraday move in more than four years – before closing with a 0.8% loss.

Friday’s declines showed that even India is becoming increasingly sensitive to the recent shockwave across the EM space, and that investors remain jittery about Indian financial shares after the recent default by Infrastructure Leasing & Financial Services shook confidence in the sector.

The IL&FS downgrade and default may have nudged investors to avoid potential collateral damage in other financial stocks.

“Downgrades are a serious possibility” for non-bank financial companies, Aneesh Srivastava of IDBI Federal Life Insurance Co. said.

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