NBFC's vulnerability warns some banks' rise in bad loans

Mumbai, Ta. December 16, 2019, Monday

Non-banking financial companies (NBFCs) are likely to increase bad loans in some banks due to the tension in the sector. The rating agency Moody's said that the trend of improvement in the bank's key factors is likely to slow down.

Banks are weakened due to heavy exposure to sectors like NBFCs and real estate. The rating agency has also cautioned that the diminishing ability of NBFCs to lend to retail borrows and small and medium enterprises could put pressure on the asset quality of banks.

Funding challenges in NBFCs are increasing asset risk for banks. This is the case in countries where the economy is more dependent on Bone-Bank lenders, which makes credit negative for banks, according to a report by Moody's.

The rising tension in NBFCs could mean increased NPAs in Indian banks, the rating agency said in a report.

The real estate sector is facing tensions where developers are facing a shortage of cash flows, making it difficult for them to repay their debt repayments. The real estate sector has remained focused on the NBFC ever since to fulfill its obligations.

When the real estate sector is facing stress, the pull in funding will weaken the performance of their loans. Currently, the SME sector is also experiencing cash flows as a result of the economic downturn.