The health of India’s shadow banks remained resilient in August, suggesting that record stimulus steps by the nation’s authorities are helping the crisis-hit sector ride out the pandemic.
Premiums on non-bank lenders’ bonds narrowed to a two-year low, according to an index of AAA rated five-year paper money. Three other indicators compiled by Bloomberg, covering areas including liquidity and share performance, stayed stable from the preceding month, with two at levels indicating strength.
India’s non-bank lending sector used to be hit by a crisis in 2018 when a large financier rapidly defaulted, and the nation now needs it to stay healthy to be able to prevent gross domestic product from shrinking further. The reach of shadow banks extends into many corners of the economy, as they lend to quite a lot of businesses from road-side teashops to tycoons.
The central bank is propping up the industry, announcing some 100 billion rupees ($1.36 billion) of special liquidity final month to organizations that fund mortgage lenders and housing finance companies, and permitting banks to restructure some loans. This follows a 750-billion-rupee special credit line given to non-bank financiers by the government in May.
But the cash inflow from the authorities hasn’t dispelled concerns among investors approximately non-bank finance companies, referred to as NBFCs. There are worries that poor debt will rise in the sector as the lockdown to curb the spread of the coronavirus has battered the nation’s businesses and left millions jobless.
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“The underwriting challenges for NBFCs could mount again, particularly for smaller NBFCs, on the back of Covid-19,” Sanjay Agarwal, senior director at Care Ratings, said in a note final week, as loan collections at shadow lenders declined after the central bank allowed a six-month moratorium on repayments.
The Bloomberg check-up of the sector’s health also showed that:
* Banking system liquidity remained buoyant
*Share prices of NBFCs that are a part of benchmark S&P BSE 500 index stayed strong
*Outstanding debt of shadow lenders affected by the crisis remained unchanged
*The scores attached to every of the indicators have been calculated by Bloomberg by normalizing the deviation of the most recent value of the indicator from its annually average. They’re assigned on a scale of 1 to 7, with 1 implying weakness and 7 showing strength.