Domestic Funding Crunch Making Indian NBFCs to Go for Offshore Financing: Fitch Rating
India's non-bank financial companies (NBFCs) will look increasingly to offshore financing in 2020 as local funding conditions are likely to remain under pressure, says Fitch Ratings. 
 
In a report, Fitch says, "We believe that funding conditions within the domestic market will remain relatively tight for NBFCs overall, notwithstanding some improvement since the failure of Infrastructure Leasing & Financial Services (IL&FS) in late 2018. Adding to the liquidity challenges, some NBFCs have a greater sensitivity to higher-risk sectors that will be affected by the slowing economy."
 
 
However, the ratings agency says it expects offshore access to be confined to larger entities with stronger credit fundamentals. “India's weaker macroeconomic backdrop is likely to add to the existing funding, growth and asset-quality strains weighing on the Indian NBFC industry as a whole, underpinning our negative outlook for 2020,” it added.
 
According to Fitch, the offshore route would allow better-placed NBFCs to further diversify funding sources after fairly volatile domestic liquidity conditions over the past year, enabling them to capture relative funding-cost benefits and exploit growth opportunities.
 
The ratings agency views wholesale lenders in particular as more at risk of asset impairments, especially those exposed to property-developer financing and large-ticket loans secured against property. Growth for such companies is likely to be constrained as funding providers continue to pull back from these segments, it added.
 
Against this background, the ratings agency says pressure for consolidation is high in NBFC segment. It says, "Coupled with tighter industry regulation, this should be positive for market stability in the longer run, and is likely to benefit companies with more resilient fundamentals or those with strong strategic linkages with financially sound corporates. Such institutions should retain better access to financing in the domestic market despite broader sector pressures."
 
NBFCs will continue to play an important role in India's financial system. Retail-oriented NBFCs are significant providers of credit to the rural areas - where banks are typically less active - and have grown in importance. Those with scale have carved out profitable niches, highlighting the robustness of business models, and have as a result retained access to institutional funding sources. 
 
"These features support Fitch's stable rating outlook for rated Indian NBFCs. Meanwhile, greater use of securitisation, coupled with asset sales, will continue to help some NBFCs with granular portfolios to generate liquidity as tight funding conditions persist," the report concluded.
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    COMMENTS

    P M Ravindran

    9 months ago

    I do not know how true the graph is. But NBFCs are very high risk investments. The credit rating by CARE and CRISIL are anything but reliable. With our failed justice delivery system Indians are conditioned to suffering atrocities perpetrated on them. It may not be so when investors from developed countries are swindled.

    Rajolu Ramam

    9 months ago

    Offshore financing is not so easy like middle class Indians who invested in companies like IL&FS and DHFL. Down grading DHFL from "AAA" rating to" D"(default) is like magic, a magician does before our eyes. There are many ratings like AA+, AA ETC ETC. How our so called pandit of finance missed. Let them not fool
    off shore investors. The country's rating will come down.

    Rajolu Ramam

    9 months ago

    Offshore financing is not so easy like middle class Indians who invested in companies like IL&FS and DHFL. Down grading DHFL from "AAA" rating to" D"(default) is like magic, a magician does before our eyes. There are many ratings like AA+, AA ETC ETC. How our so called pandit of finance missed. Let them not fool
    off shore investors. The country's rating will come down.

    SBI cuts lending rate by 10 bps to 7.90%
    The State Bank of India (SBI) on Monday announced a 10 basis points cut in one-year marginal cost of funds-based lending rate (MCLR), effective from December 10. It will bring SBI's one-year MCLR down to 7.90 per cent from 8 per cent.
     
    The bank claimed it continued to be the cheapest loan provider in the country.
     
    The Reserve Bank of India (RBI) earlier this month kept the repo rate at 5.15 per cent, barely 40bps higher from the lowest ever. On a cumulative basis, the RBI has slashed lending rates by 135bps since the start of the year.
     
    Monetary transmission, the RBI at its December policy review meeting, said had been full and reasonably swift across various money market segments and the private corporate bond market.
     
    "As against the cumulative reduction in the policy repo rate by 135bps in February-October, transmission to various money and corporate debt market segments ranged from 137bps (overnight call money market) to 218bps (3-month CPs of non-banking finance companies)," RBI said.
     
    The central bank had also said after the introduction of the external benchmark system, most banks had linked their lending rates to the RBI policy repo rate.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

     

  • User 

    Pressure on Indian finance cos due to NBFC crisis started with IL&FS defaults: Moody's
    Global rating agency Moody's on Monday said pressure on Indian finance companies continues to build up, with some banks heavily exposed to non-bank credit providers, hinting that India's NBFC crisis is far from over, even after a year since the troubles began when a major shadow bank IL&FS Group abruptly defaulted.
     
    "Most Asia Pacific (APAC) banks have passed Moody's stress test on capital, except the banks in India, Mongolia, Sri Lanka and Vietnam, because banks in these jurisdictions have lower starting capital ratios and higher starting problem loan ratios," the rating company said.
     
    Moody's Investors Service's outlook for the banking industry in Asia Pacific is negative over the next 12 months, because owing to the US-China trade dispute, which will weaken economic and trade activity in the region, and erode investor confidence.
     
    "Weaker economic and trade conditions will lead to moderate increases in problem loans for APAC banks," said Eugene Tarzimanov, Moody's Vice President and Senior Credit Officer.
     
    "Meanwhile, the banks' profitability will fall, because they are raising credit provisions while central banks are cutting interest rates to support economic growth," said Tarzimanov.
     
    Nevertheless, Moody's said that APAC banks have generally maintained good capital and liquidity buffers and the probability of government support for these banks will stay high, except for the banks in Hong Kong, because the territory is the only jurisdiction in APAC with an operational resolution regime.
     
    With recurring NBFC fiascos such as the IL&FS and the recent case of DHFL, the government has asked the Reserve Bank of India to consider several proposals to de-stress the NBFC sector, including the creation of a special fund by the central bank to buy out stressed assets of the top NBFCs.
     
    Sources said the discussions are going on, although the central bank is not very keen on moving forward. The fund being mulled is in line with the 2008 Troubled Asset Relief Programme (TARP) of the US, under which the government purchased toxic assets and equity from financial institutions to strengthen its financial sector.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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