Indian foreclosure shakes lenders | Reuters

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* Loans: no respite for FI borrowers as the economy shuts down

SINGAPORE, April 9 (LPC) – Ailing Indian financial institutions face new challenges in attracting foreign funding as the coronavirus pandemic threatens to reduce the growth of the world’s fifth-largest economy to its lowest level in 30 years.

Loan syndications for Indian borrowers in recent weeks indicate that offshore lenders are increasingly concerned about further deterioration in asset quality due to the sharp decline in economic activity and rising unemployment. India imposed a 21-day lockdown on March 25 to tackle the Covid-19 pandemic.

Over the past month, financial institutions, including PNB Housing Finance and leading borrower HDB Financial Services, entered into loans with limited syndication.

The reception of offshore lenders underlines the weak sentiment towards the Indian financial sector, which is already reeling from a series of defaults.

“Confidence in the financial sector is low and one of the problems people face is with non-performing assets,” said a banker syndicating loans at a world bank. “We just hope that there won’t be any further surges from NPA. Otherwise, it could be an even longer journey to recovery. “

BANKING SECTOR DISEASES

Indian bank NPAs are not a new concern, with a system-wide bad debt rate of 9% in March 2019, according to the Reserve Bank of India.

Since the lockdown began on March 25, Fitch has reduced India’s GDP growth forecast for the fiscal year ending March 2021 to 2%, from 5.1% previously. This year could see the country’s slowest growth in 30 years, the rating agency said.

On April 2, Moody’s changed its outlook for the Indian banking system from stable to negative, warning that the foreclosure will eventually put pressure on profitability and capital.

India’s banking sector suffered another blow in mid-March when the RBI took control of Yes Bank, the country’s fifth-largest private sector bank, which recorded a rise in gross bad loans to 18.87% of total loans for the quarter ending December 31 from 2.1% a year earlier.

Nonbank financial corporations have been grappling with tight liquidity following defaults and credit fears that started with missed payments from Infrastructure Leasing & Financial Services in September 2018. Dewan Housing Finance, another big NBFC, defaulted on its debt last June.

“Debt capital will continue to remain a challenge for most NBFCs,” said a Mumbai-based banking analyst. “There are lenders and investors who at present are only comfortable with certain names and not others, so access to finance remains limited to a few.”

Since 2018, NBFCs have increasingly relied on Indian banks for funding and most banks are now close to their exposure limits, he said.

LITTLE APPETITE

Several NBFCs had lined up offshore borrowing at the end of last year, but few international lenders joined the agreements despite the scarcity and strong parentage of borrowers.

Last week, PNB Housing Finance, a state-owned unit of Punjab National Bank, announced that it had raised an additional $ 100 million through co-financing of loans from two foreign lenders. This followed a month after the closing of a three-year US $ 75 million term loan, which only one bank joined after nearly six months of general syndication.

LIC Housing Finance, a subsidiary of state insurance giant Life Insurance Corp of India, is returning to the offshore lending markets after nearly 17 years. It is expected to close a three-year US $ 200 million loan without general syndication, having so far attracted only one senior syndicated bank.

In mid-March, HDB Financial Services, the NBFC unit of India’s largest private sector lender HDFC Bank, increased a three-year loan to $ 530 million from $ 300 million, despite only two banks joining. to general syndication. State Bank of India, one of the three leaders, eventually took US $ 250 million, increasing its initial commitment by US $ 150 million.

In 2019, Indian NBFCs raised US $ 3.07 billion through offshore syndicated loans, according to data from Refinitiv LPC. Overall, Indian loan volumes fell 24.5% year on year to $ 18.20 billion.

Transaction flow from India also declined 23% year-on-year in the first three months of 2020, to $ 4.95 billion.


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