New Delhi: Moody's Investor Service has cast a doubt on the viability of India's retail and SME loan sectors. On Wednesday, the agency said that the quality of retail and SME loans is likely to deteriorate in the days to come.
Two days ago, the agency downgraded India's sovereign rating to Baa3 from Baa2. India's credit rating has been placed just a notch above junk status.
Revealing the hidden pain for NBFIs (non banking financial institutions), the agency observed that both assets and liabilities are likely to come under a strain in the near term. This is estimated at approximately 10-15 percent of bank loans.
"Over 80 percent of rated non-financial companies have negative outlooks or are under review for downgrade. Two-thirds of the rated infrastructure portfolio has a negative bias," it said.
Private power sector exposure is about 8-10 percent of bank loans. In the auto value chain, the most exposed banks are the private sector banks.
It said that now the quality of retail and SME loans will also deteriorate, which account of 44 percent of the total loans.
The deterioration is likely to impede growth for policymaking institutions as well as weaker fiscal conditions and rising financial sector stress.
It said that the risks to the financial system are rising. "Our rating action signals downward pressure on the ratings and standalone assessments of most rated banks," it said.
The agency pointed out that India's debt burden remains high as compared to its peers and the deficits have fallen short of FRBM targets.
The slowdown in India was evident before the coronavirus outbreak, it said, as factors were evolving before the pandemic and the risks were rising since November 2019.
The mutually reinforcing risks from weak economy and strained financial system are driving downside risks. Increasing challenges for policymaking institutions, it has flagged as slower reform momentum hinders effective implementation, pointing to the drivers of the rating action. There has been a prolonged period of slower growth, Moody's said.
With agency inputs from IANS.