Analyst Corner: BFSI’s retail credit portfolio is under scrutiny

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Published: February 23, 2019 12:26:53 AM

NBFCs highlighted that availability as well as cost of financing has slightly improved and sell-downs will be one of the key avenues for managing liquidity.

Analyst Corner: BFSI: Retail credit portfolio is under scrutiny

We hosted more than 35 BFSI companies at the Edelweiss India Conference 2019: Seeking Growth – The ESG Way held from February 13–15 and put them face-to-face with industry participants, including regulators, an economic advisor, real estate consultants, power sector experts and credit bureau.

Interestingly: (1) Investors’ mindshare was dedicated towards ongoing liquidity issues and were inquisitive about lagging deposit growth. Companies highlighted that availability and cost of financing have slightly improved and sell-downs will be one of the key avenues for managing liquidity. Banks highlighted rate cut transmission is likely to be more gradual. (2) Amidst weak sentiment in real estate sector, financiers sounded cautious on incremental real estate lending and are evaluating measures for pruning exposures. (3) On retail credit, investors tried charting its course through the growth cycle to which financiers responded that there are no early warning signals or lead indicators suggesting stress in the near term.

On balance, we believe both investors and corporates were cautiously optimistic bracing for near-term uncertainty while exuding confidence about long-term prospects. A large part of the investor mindshare was dedicated towards analysing how respective companies are positioned to navigate near-term uncertainty.

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NBFCs highlighted that availability as well as cost of financing has slightly improved and sell-downs will be one of the key avenues for managing liquidity.

However, risk aversion and balance sheet liquidity will keep growth under check.

Disruption in credit flow, particularly to real estate developers, is making investors nervous about BFSI’s construction-financing portfolio. Financiers too sounded cautious on further lending and are looking to prune exposure to stressed assets.

Retail credit cycle has been benign for eight–nine years. While there are no lead indicators of job losses or economic slowdown, implying a low probability of any stress in the near term, this portfolio is under scrutiny.

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