Global rating agency, Fitch Ratings in its latest report has said that India’s non-banking financial companies (NBFCs) will go for offshore financing in 2020 as funding conditions within the local market will continue relatively tight for NBFCs overall, though some improvement since the failure of Infrastructure Leasing & Financial Services (IL&FS) in late 2018. However, it expects offshore access to be restricted to larger entities with stronger credit fundamentals.
According to the report, India’s weaker macroeconomic backdrop is likely to add to the existing funding, growth and asset-quality strains weighing on the Indian NBFCs industry as a whole. It said the offshore route will allow better-placed NBFCs to further diversify funding sources after fairly volatile domestic liquidity conditions over the past year, enabling them to capture relative funding-cost benefits and exploit growth opportunities.
The ratings agency further said that pressure for consolidation is highly likely against this background. It noted that coupled with tighter industry regulation, this should be positive for market stability in the longer run, and is likely to benefit companies with more resilient fundamentals or those with strong strategic linkages with financially sound corporates. It added that such institutions should retain better access to financing in the domestic market despite broader sector pressures.