Financial Institutions to continue amid macroeconomic slowdown, weak funding: Fitch

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Published: February 20, 2020 12:45:49 PM

However, Fitch also said that the recent fundraising by a number of NBFCs during the first two months of 2020 points to a slightly improved funding environment.

As stress in the non-bank, real estate and SME segments remains unresolved, asset-quality tensions were likely to intensify. As stress in the non-bank, real estate and SME segments remains unresolved, asset-quality tensions were likely to intensify.

Financial institutions in India will continue to face a difficult operating environment amid the macroeconomic slowdown and weak funding conditions, said Fitch Ratings on Wednesday. The rating firm said that retail-focused non-banking finance companies (NBFCs) and those backed by large corporate groups would be able to tap the markets better, while those with large wholesale books and housing finance companies are the most at risk.

Led by a squeeze in credit availability from NBFCs and deterioration in business and consumer confidence, the ratings agency said that the real GDP growth would slow to 4.6% for FY20 and modestly rebound to 5.6% for FY21, down from 6.8% in FY19. “Funding conditions are, therefore, likely to remain weak and Indian FIs (would be) risk-averse in the year ahead, in line with Fitch’s negative sector outlook for both banks and NBFIs,” the agency said in a report.

As stress in the non-bank, real estate and SME segments remains unresolved, asset-quality tensions were likely to intensify. The agency said that support measures from the authorities have had a mixed effect, with the onus largely on banks’ weak balance sheets through higher lending and regulatory forbearance. “The potential for contagion for banks thus exists as a result of their direct exposure to NBFIs as well as the second-order economic impact of being exposed to the sectors that are adjusting to the credit squeeze as the NBFIs cut back exposure,” the firm said.

However, Fitch also said that the recent fundraising by a number of NBFCs during the first two months of 2020 points to a slightly improved funding environment. The companies would continue to tap the offshore market, but access is likely to remain uneven and limited largely to retail-focused NBFCs and those backed by large corporate groups. The firm said that wholesale and housing finance companies are the most at risk as they will continue to find it difficult to raise funds, given their greater exposure to the real-estate sector where further pressure on cash flows and collateral values is expected.

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