NBFCs to continue borrowing offshore in FY20, says Fitch

As for smaller NBFCs, asset sales or converting assets into securities will help generate liquidity as tight funding conditions persist.

Non-banking finance companies (NBFCs) will look to offshore markets to meet their credit requirements in 2020 as domestic conditions for them are going to remain under pressure next year as well, rating agency Fitch said in a report on Tuesday.

The agency added that the country’s weaker macroeconomic backdrop is likely to add to the funding, growth and asset quality strains weighing on the Indian NBFC industry as a whole, underpinning the agency’s negative outlook for 2020. Access to offshore money would be limited to larger entities with strong credit fundamentals. “The offshore route would allow better-placed NBFCs to further diversify funding sources after fairly volatile domestic liquidity conditions over the past year, enabling them to capture relative funding cost benefits and exploit growth opportunities,” the report said.

Wholesale lenders in particular, according to Fitch, are at a higher risk of asset impairments. Additionally, those exposed to property-developer financing and large-ticket loans are also at greater risk since lenders will continue to pull back funding from such companies.
“Pressure for consolidation is highly likely against this background. Coupled with tighter industry regulation, this should be positive for market stability in the longer run,” the rating agency said.

As for smaller NBFCs, asset sales or converting assets into securities will help generate liquidity as tight funding conditions persist. NBFCs have been facing a funding crunch since the fall of the Infrastructure Leasing & Financial Services (IL&FS) group in 2018, coupled with an ongoing economic slowdown.