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21
March 2017
Global
rating agency Moody's Investors Service on Tuesday said that as a fall-out of
demonetisation, the Non-Banking Financial Companies (NBFCs) will come under
pressure for the next six months. The Total
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"NBFCs
in India will demonstrate broadly stable asset quality, but delinquencies will
likely rise over the next one-two quarters, as demonetisation adversely affects
collections across asset classes," Moody's Investors Service said in its
latest report released here.
"It
will add to the short-term adjustment pressure on India's non-bank finance
companies, but will not derail their growing franchise," Moody's
added.
The
report is titled 'Indian Non-Bank Finance Companies (NBFCs): Balancing Strong
Growth with Rising Risks'. The Total
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Over
the past three years, the NBFCs have gained some market share in the
origination of retail lending, on the back of the faster growth exhibited by
such entities when compared to the banks.
This
is particularly the case when compared to public sector banks, which face
significant challenges on their asset quality and overall solvency profiles.
"Nevertheless,
we expect that competitive pressures from the banking sector will remain
intense as banks are increasing targeting of the retail segment to offset
weakness in their corporate lending," Alka Anbarasu, Moody's Vice
President and Senior Analyst, said.
"In
addition, retail lending, particularly housing loans, is more capital efficient
for the banks," Anbarasu added. The Total
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On
funding, Moody's said that it expects that the NBFCs' funding profiles would
broadly remain stable. The Total Investment
& Insurance Solutions
"The
NBFCs' profitability and capital, as well as funding and liquidity levels, will
stay broadly stable," it said. The Total
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Moody's
conclusion is despite the fact that -- in line with the global trend -- the
funding and liquidity profiles of Indian NBFCs present key downside risks,
particularly because of their dependence on confidence-sensitive market
funding.
Moody's
said that the NBFCs will maintain well-matched asset-liability profiles --
despite their weak funding profiles -- a situation which will protect them
against downside risks.
"However,
adverse market events have exposed them to volatility in refinancing and remain
a key credit challenge," it said. The
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The
NBFCs are growing at a fast pace, and have gained market share in the
origination of retail credit. The Total
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"The
performance of individual NBFCs varies widely, even as the sector as a whole
shows better performance when compared to the banks. In addition, within
segments -- such as for housing finance companies -- variation is also
widespread, reflecting the nature of portfolios, as well as the ability to
manage costs," the report said.The Total
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