Improving credit growth and diminishing asset-quality risks should characterize Indian non-bank financial companies (NBFCs) in FY23, Fitch Ratings said on Monday. This should support performance amid a broadening economic recovery, although certain segments could still be vulnerable to higher-than-expected inflation, it said.
Fitch revised the outlook on India’s BBB- sovereign rating to stable from negative in June 2022. This, it said, was underscored by a rapid economic recovery and easing financial-sector weaknesses, which reduce the downside risks to the country’s medium-term growth despite near-term inflationary headwinds.
Gross domestic product (GDP) rebounded by 8.7 per cent in FY22 after contracting by 6.6 per cent in FY21, and Fitch projects a solid medium-term growth potential of around 7 per cent between FY24 and FY27.
“We do not expect a significant rise in non-performing loans, as an economic recovery should underpin borrowers’ ability to repay. Runaway inflation prompting significantly steeper hikes in policy rates would be a downside risk, with a potential impact on more economically sensitive sectors such as small and medium enterprises (SMEs) and property developers,” it said.
Funding and liquidity profiles of large NBFCs are likely to remain stable even as funding costs rise in line with rising policy rates both domestically and globally, it said. The effect on NBFC net interest margins will differ depending on their loan segment and pricing power.
