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    Retail and SME loans to deteriorate now: Moody's

    Synopsis

    Days after downgrading India, Moody's said the quality of retail and SME loans will also deteriorate.

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    Private power sector exposure is about 8-10 per cent of bank loans.
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    Days after downgrading India's sovereign ratings, global credit ratings agency Moody's Investors Service said on Wednesday that the quality of retail and SME loans will also deteriorate.

    Elaborating on the key drivers behind India's sovereign downgrade, it said that the risks to the financial system are rising.

    Some sectors were already under strain before the coronavirus outbreak. For NBFIs, both assets and liabilities will come under a strain in the near term, this is about 10-15 per cent of bank loans.

    Private power sector exposure is about 8-10 per cent of bank loans. In the auto value chain, the most exposed banks are the private sector banks.

    It said that now the quality of retail and SME loans will also deteriorate, which account of 44 per cent of the total loans.

    Moody's Investors Service has said that policymaking institutions face increasing challenges from lower growth, weaker fiscal conditions and rising financial sector stress.

    It said that the risks to the financial system are rising. "Our rating action signals downward pressure on the ratings and standalone assessments of most rated banks," it said.

    "Over 80 per cent of rated non-financial companies have negative outlooks or are under review for downgrade. Two-thirds of the rated infrastructure portfolio has a negative bias," it said.

    The agency pointed out that India's debt burden remains high as compared to its peers and the deficits have fallen short of FRBM targets.

    The slowdown in India was evident before the coronavirus outbreak, it said, as factors were evolving before the pandemic and the risks were rising since November 2019.

    The mutually reinforcing risks from weak economy and strained financial system are driving downside risks. Increasing challenges for policymaking institutions, it has flagged as slower reform momentum hinders effective implementation, pointing to the drivers of the rating action. There has been a prolonged period of slower growth, Moody's said.
    (Catch all the Business News, Breaking News Events and Latest News Updates on The Economic Times.)

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    27 Comments on this Story

    S. SUNDARARAMAN SRINIVASAN40 days ago
    tough problems indeed... In retail sector.. it would difficult for banks to contact millions of borrowers for the banking system.. to ascertain reasons for default & verify... so the obvious scenario emerges...? On the SME front.. frequent loan waivers/sops.. politicians playing dirty games discouraging small borrowers not to repay.. & false promises some waiver scheme may come... etc. compound the issues.. and one-third of MSME are set to down shutters.. big dent on their bottom line .. it might take quite a while.. for them to get up and walk....? GOK
    Jagdip Vaishnav40 days ago
    At any time, Banks has to disburse loan after due assessment .Here Govt go on advising Banks to disburse loan to small borrowers,MSME without security ,forgets Banks are running on he strength of Depositors money
    Neeraj 40 days ago
    Can they do their own rating. I can predict them to be at the verge of insolvency..lower than junk.
    The Economic Times