A vendor hols an Indian one hundred rupee banknote at a colored powder market stall ahead of Holi celebrations in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)

Moody’s Says NBFC Stress Will Weigh On India’s Growth

India’s economic growth is likely to take a hit due to liquidity constraints faced by non-banking lenders, according to a Moody’s report.

"India's GDP growth will slow to just above 7 percent for fiscal 2019 and 2020,” said Michael Taylor, Moody’s managing director and chief credit officer for the Asia-Pacific region. “This result is below an estimated 7.4 percent out-turn in the fiscal year ending March 2018 and below the pick-up in growth that we envisaged a few months ago."

The recent defaults by Infrastructure Leasing & Financial Services on multiple debt obligations earlier this year is likely to impact credit supply in the non-banking space. Taylor said any further distress in the non-banking financial companies will pose significant downside risks to India's growth outlook.

A sharper slowdown in the credit supply in the non-banking segment would significantly tighten the overall credit availability, increase borrowing costs and reduce economic growth by around half a percentage point over a few years, the report said.

According to the credit rating agency, state-run banks and private lenders will not be able to increase their lending to offset the credit gap created by the non-banking finance companies.

Also read: IMF Sees India GDP Growth At 7.4% In 2018, China’s At 6.8%