Fitch Ratings believe near-term recovery not probable for NBFCs

Amir Shaikh
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Fitch Ratings believe near-term recovery not probable for NBFCs

The rating agency Fitch in its latest report said that a near-term recovery for India's non-banking financial institutions is not probable, as the sector continues to wrestle with the fallout of Coronavirus pandemic.

It believes that the significant economic disruption and prevailing uncertainty caused by the pandemic will impede a return to a more normal operating environment for non-banking financial institutions, with consequences for new loan disbursements, asset quality and provisioning, sector profitability as well as funding conditions.

Fitch Ratings is of the view that uncertainties caused due to unenthusiastic consumer demand and a sustained high level of Coronavirus infections are expected to dampen the gradual economic reopening, which has shown enhanced collections and funding availability since June 2020.  

It also said construction finance could witness downsizing amid delayed construction activity and lower unit sales. Besides, the other segments that may also witness consolidation include infrastructure finance, low-yielding corporate loans, and loans against property in urban areas. However, it said that the non-banking financial institutions in India are highly differentiated, and some lending segments will benefit from a quicker recovery.

According to the report, the gold-backed loan sector is expected to witness early recovery owing to lower ticket sizes, greater market confidence in the loan collateral and a more robust outlook for the rural sector.

Further, other commercial segments, such as commercial vehicle finance are likely to witness a gradual revival as freight demand improves. The rating agency also sees that India's GDP would remain weak in the next quarter or two, witnessing a decline of nearly 5 per cent in the fiscal year 2020-21. Meanwhile, for FY22E, it expects strong single-digit recovery with 8 per cent growth.

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