Weaker nominal GDP growth over a prolonged period would weigh on India's fiscal strength and the overall sovereign credit profile, Moody's warned nearly a year after upgrading India's sovereign rating\u00a0to Baa2 from Baa3. In the second quarter of the financial year 2018-19, India's real Gross Domestic Product (GDP) growth dropped to 7.1% from 8.2% in the previous quarter.\u00a0Economists raised concerns on the some of the underlying trends, which could pull down the full-year growth rate to just about 7%. However, there is a difference between nominal GDP and real GDP. Real GDP is nominal GDP adjusted for the effects of inflation. Moody's also said India's real GDP growth in both FY19 and FY20 will slow to just\u00a0above 7%.\u00a0Earlier, Moody's had estimated a GDP growth rate of 7.4% for FY19. Liquidity constraints faced by Non-Banking Financial Companies (NBFCs) may tighten overall credit supply, Michael Taylor, Moody's Managing Director and Chief Credit Officer for Asia Pacific, said. The NBFC sector accounted for nearly 17% of total loans and one-third of total retail loans. The liquidity crisis in NBFCs came to light early September when\u00a0Infrastructure Leasing & Financial Services (IL&FS) defaulted on servicing of several loans. Moreover, with lending restrictions on 11 weak public sector banks (PSU banks) and capital constraints in other banks due to high stressed assets, the overall lending will be muted, Moody's said. The private sector banks already have a strong loan growth and with\u00a0significant exposure to NBFCs, Moody's does not expect them to compensate for credit shortfall from NBFCs either. The rating agency in November last year surprised by upgrading India's sovereign\u00a0rating on the back of Goods and Services Tax (GST) and Insolvency and Bankruptcy Code (IBC) implementation, improvement in Ease of Doing Business ranking and the decision to recapitalise banks. However, over the last one year, India witnessed a massive scam at Punjab National Bank, severe quarterly losses by the banking sector due to high NPA provisioning and liquidity crisis in NBFCs. "Any further distress in the Indian non-bank financial institutions NBFI (NBFC) sector will pose significant downside risks to India's growth outlook," Moody's said.