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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)
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