HOME > MARKETS > ECONOMY NEWS
  ECONOMY NEWS
ECONOMY
Financial institution sector may continue to face tough operating environment: Fitch
Feb-20-2020

Rating agency Fitch in its latest report has said that the Indian financial institutions (FIs) sector may continue to face tough operating environment amid the macroeconomic slowdown and weak funding conditions. It said the stress in non-banking financial companies (NBFCs), small and medium enterprises (SMEs) and the real estate sector will continue to put asset-quality pressures on financial institutions in the country. Fitch cut its growth forecast for India to 4.6 percent in 2019-20 from 6.8 percent in 2018-19, due to credit squeeze and deterioration in business and consumer confidence. However, it expects growth to gradually recover to 5.6 percent in 2020-21.

The report said asset-quality tensions are likely to intensify if stresses on non-banks, real estate and SMEs remain unresolved. Idiosyncratic stress in the telecom sector has also pushed up asset-quality risks for banks, which are vulnerable due to weak capital and income buffers. It noted that the potential for contagion for banks, thus, exists as a result of their direct exposure to non-banking financial institutions (NBFIs) as well as the second-order economic impact of being exposed to the sectors that are adjusting to the credit squeeze as the NBFIs cut back exposure.

The rating agency said the recent fundraising trends by a few NBFCs in January and February 2020 indicate improvement in funding environment. It also expects NBFIs to continue to tap the offshore market, but access is likely to remain uneven and limited largely to retail-focused NBFIs and those backed by large corporate groups. It added that wholesale and housing finance companies are the most at risk as they will continue to find it difficult to raise funds, given their greater exposure to the real-estate sector where there is pressure on cash flows and collateral values.

  RELATED NEWS >>