Indian asset risks rise amidst NBFC funding stresses

The economy has grown dependent on non-bank lenders.

Asset risks in Indian banks are rising as non-bank finance companies (NBFCs) facefunding challenges, threatening an economy that has grown dependent on non-bank lenders, according to a Moody’s report.

“NBFCs have been forced to reduce lending, raising refinancing pressure amongst their own borrowers, and translating back into loan defaults,” Moody’s senior credit officer Srikanth Vadlamani said.

The real estate sector has been particularly affected as developers lacking cash flow turn to NBFC funding to roll over obligations. Tighter funding will only add pressure and weaken loan performance, the report remarked.

The retail and small and medium-sized enterprise (SME) sectors are also taking stress, both of which have grown rapidly in recent years due to NBFC funding.

The improving asset quality, profitability and capital trends seen in banks in the past few quarters will likely slow or reverse.

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