Shadow banking assets fairly small by global standards: Fitch

Last Updated: Wed, May 22, 2019 16:19 hrs
Fitch Ratings (PTI photo)

New Delhi: Shadow banking assets as a percentage of total financial assets within the country were at 14.3 per cent, in line with the global percentage of 13.7 per cent, a Fitch reports said on Wednesday.

The figures assume significance as Indian shadow banking's rapid growth and reliance on short-term funding sources bubbled over in 2018, most evident by the default of IL&FS last year.

The reports pointed out that India's shadow banking assets were fairly small by international standards, ranking 17th globally at $571.7 billion as of YE17, according to the Financial Stability Board's (FSB).

"Despite these modest indicators, the Indian shadow banking system has grown rapidly over the last decade, with a particular spike in 2017 driven by finance companies providing asset finance and home loans and funds investing in infrastructure loans," Fitch said.

"Non-bank growth has been fuelled by accommodative funding markets following demonetisation, which saw liquidity flow to money market funds and banks, while many Indian public-sector banks were capital-constrained due to their own asset quality issues," it added.

The reports further explained that the prolonged rapid growth across the sector brings into focus the relative vulnerability of non-bank financial institutions' business models, particularly related to risk management and funding and liquidity.