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.
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