New Delhi, May 26
India's government-owned non-bank financial institutions are expected to grab more market share in the coming year or two, according to S&P Global Ratings. It projected a sustained strong growth for the government-owned non-bank financials.
New Delhi [India], May 26 (ANI): India's government-owned non-bank financial institutions are expected to grab more market share in the coming year or two, according to S&P Global Ratings. It projected a sustained strong growth for the government-owned non-bank financials.
According to a report titled "Indian Government-Owned Financial Institutions: In The Fast Lane," these firms' roles in supporting economic development will strengthen their franchises.
"Financial services is one of the four strategic sectors in India. As such, government-related entities (GREs) in the sector are more likely to benefit from government support," said S&P Global Ratings credit analyst Deepali Seth-Chhabria.
"This is particularly so for those that play policy roles. In our view, government linkages provide financial flexibility, access to cheaper funding, and a mechanism for asset quality support," said Deepali Seth-Chhabria.
Government-owned entities dominate the financial sector in India. Many state-owned nonbanks operate in segments that are of national interest.
"We expect loan growth for financial GREs to stay at about 15 per cent per annum over the next two years, aided by mandates to drive the development of strategic sectors," said the report.
They expect relatively higher growth for entities like the National Bank for Financing Infrastructure and Development (NaBFID); and the Indian Renewable Energy Development Agency Ltd. (IREDA), both of which are expected to scale up their business from a low base.
"Asset quality is a mixed bag. Some nonbank financial institutions are exposed to weak borrowers, though sovereign exposure and guarantees from the government partially mitigate the risk," said S&P Global Ratings credit analyst Geeta Chugh.
"Credit costs for the sector have improved and are better than peers'. However, we expect credit costs for the sector to rise as their loans season, recoveries dwindle, and benefit of excess provisions created in previous years tails off," Geeta Chugh added.
Earnings are moderate for the development financial institutions, including those that focus on small industries (SIDBI), agriculture (NABARD), and housing (NHB).
"The same follows for the two financial GREs in India we rate, Indian Railway Finance Corp. (IRFC; BBB-/Positive/--) and the Export-Import Bank of India (EXIM; BBB-/Positive/A-3)," it noted.
In contrast, Power Finance Corp, REC, and IREDA make higher margins as they lend to relatively weaker borrowers, the S&P report added.
— ANI
Reader Comments
This is great news for our economy! PSU financial institutions playing a bigger role means more stability and support for infrastructure projects. Hope they maintain transparency though - we've seen how some NBFCs collapsed due to bad practices. 🇮🇳
As someone working in renewable energy sector, IREDA's growth projection is very encouraging. More funding for green projects will help India meet its climate goals. But they need to simplify loan procedures - currently too much red tape!
Mixed feelings about this. While government backing provides stability, PSUs often lack efficiency of private players. Hope they don't crowd out private NBFCs completely. Competition is healthy for any sector.
Good to see focus on strategic sectors! But what about rural development? NABARD and SIDBI need more attention too. Our farmers and small businesses deserve better financial support. Hope this growth trickles down to grassroots level.
The 15% loan growth projection is impressive! But as the report mentions, asset quality is a concern. Government guarantees shouldn't become an excuse for reckless lending. Remember what happened with Air India? Fiscal responsibility is key.
As a finance professional, I welcome this development but with caution. PSU NBFCs must adopt modern risk management practices. Also hope they leverage technology better - private fintechs are miles ahead in digital services. Jai Hind! ðŸ™
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