Moody’s Investors Service on Thursday said that the liquidity constraints faced by some non-banking financial companies (NBFC) will likely tighten overall credit supply in the country and impact economic growth.
“Consequently, India’s GDP growth will slow to just above 7% for fiscal 2019 and 2020. This result is below an estimated 7.4% out turn in the fiscal year ending March 2018 and below the pick-up in growth that we envisaged a few months ago,” says Michael Taylor, a Moody’s MD and chief credit officer for Asia Pacific.
“In addition, any further distress in the Indian NBFI sector will pose significant downside risks to India’s growth outlook,” adds Mr.Taylor. The ratings agency noted that NBFCs accounted for nearly 17% of the total loans and one-third of retail loans for the financial year ended March 2018.
PSB lending
Moody’s said that public sector banks, which accounted for about 70% of system’s loans, would not be able to increase their lending to offset the slowdown in credit provided by NBFCs because such banks were capital-constrained and unlikely to receive further capital allocation beyond what had been announced by the government. Moody’s does not expect any further pick up in private sector banks’ lending to compensate for NBFC shortfalls.
