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Near-term recovery for India's NBFIs not probable: Fitch Ratings
Jul-14-2020

Fitch Ratings in its latest report has said that a near-term recovery for India's non-banking financial institutions (NBFIs) is not probable, as the sector continues to wrestle with the fallout of coronavirus pandemic. It said ‘we believe the significant economic disruption and prevailing uncertainty caused by the pandemic will impede a return to a more normal operating environment for NBFIs, with consequences for new loan disbursements, asset quality and provisioning, sector profitability, and funding conditions.’

The rating agency has predicted that uncertainty stemming from tepid consumer demand and a sustained high level of coronavirus infections are likely to hurt the gradual economic reopening that has shown improved collections and funding availability since June 2020. It also said construction finance could witness downsizing amid delayed construction activity and lower unit sales. Other segments that may also witness consolidation, should the downturn persist, include infrastructure finance, low-yielding corporate loans as well as loans against property in urban areas. It, however, said that NBFIs in India are highly differentiated, and some lending segments will benefit from a quicker recovery.

According to the report, those in gold-backed loan sector could see an earlier revival due to lower ticket sizes, greater market confidence in the loan collateral and a more robust outlook for the rural sector, where many larger gold lenders are focused. It also noted that other commercial segments, such as commercial vehicle finance, should see a gradual pickup as freight demand improves. Fitch also expects India's GDP to remain weak in the next quarter or two, contracting by 5 percent in the fiscal year ending March 2021 (FY21) before recovering to 8 percent growth in FY22.  

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