Oil prices, pace of banks’ balance sheet clean-up and investment remain the key credit risks in India, according to an investor survey by Moody’s Investors Service.
While market participants in Singapore and Mumbai were unanimous in pegging high crude price as the main risk to India’s economy, views varied on the second biggest risk, according to the ratings agency.
“When asked about the top risks facing the Indian economy, most of the respondents highlighted high oil prices as the top risk, while 30.3% of those in Singapore picked rising interest rates as the next top risk, and 23.1% of those in Mumbai picked domestic political risks as the second top risk,” Joy Rankothge, a vice president and senior analyst at Moody’s, said in a press release.
Participants at Moody’s 4th Annual India Credit Conference, conducted by the credit ratings agency along with its Indian affiliate ICRA Ltd. in Mumbai and Singapore in June 2018, were polled on some of the most pressing credit issues facing India.
Almost 175 people representing more than 100 local and international financial institutions attended the conference, Moody’s said.
Fiscal slippage seen
Most attendees at both locations opined that India would not meet the central government’s fiscal deficit target of 3.3% of GDP for the financial year ending in March 2019, according to the release.
Further, only 23.3% of the respondents in Singapore and 13.6% in Mumbai thought that the fiscal targets would be achieved, with 84.7% in Mumbai and 76.7% in Singapore expecting some fiscal slippage.
Those polled in both Singapore (85.7%) and Mumbai (93.6%) were of the opinion that the government’s bank recapitalisation package was mostly insufficient to resolve solvency challenges.
‘Capital insufficient’
“Although we expect the recapitalisation package to be sufficient to meet the minimum regulatory capital needs, we think it will be insufficient to support credit growth,” Moody’s said in a report. “Banks have not been able to raise new capital from the equity markets as planned under the government’s recapitalisation measures,” it said.
Incidentally, while 59.6% of the attendees in Mumbai thought that banks would be unable to raise capital from the markets as planned, only 32.1% of those polled in Singapore held that view, Moody’s said.
