Bad Debt at India Shadow Banks Seen Rising Amid High Fund Costs
(Bloomberg) -- Just when they were trying to get past their cash-crunch woes, India’s non-bank financiers may find themselves staring at a new problem: a rise in soured debt amid higher funding costs.
That’s the prognosis about shadow lenders by Washington-based Institute of International Finance, which sees support likely from policy makers as part of their efforts to boost credit growth and bolster the economy ahead of federal elections due by May.
Lending by India’s non-bank financiers, which accounted for about 4 out of every 10 consumer loans in the last three years, fell in late 2018 after default by a beleaguered shadow financier -- Infrastructure Leasing & Financial Services Ltd. -- curtailed their access to funding.
Shaktikanta Das, India’s new central bank chief, is meeting representatives from non-bank finance companies on Wednesday. The lenders are likely to highlight the problems they are facing in raising funds and keeping operations afloat, with many pushing the central bank for a special refinance window to ease pain.
Banks have stepped in to fill in some of the space vacated by the non-bank financiers, helping underpin overall loan growth in the economy. However, specific sectors where shadow lending grew fast may face borrowing constraints, IIF said in its Jan. 8 note.
“Near-term risk from shadow banks appears contained, but policy making in India will be subject to close market scrutiny this year,” said Sergi Lanau, deputy chief economist at the IIF.
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