NBFC stress in India: Outlook and risks

During this 30 minute discussion IHS Markit experts spanning our Country Risk, Banking Risk and Economics teams focus on stresses within India's Non-Banking Financial Companies (NBFC) and what their problems imply for infrastructure investment and overall economic development ahead of upcoming state and general elections.

Rumors of the enactment of Section 7 of the RBI Act this morning (31 October), which would give the government far greater direct control of RBI policy-making, make the analysis particularly timely. We give our initial assessment of this potentially unprecedented move, and look at the likely policy implications.

Key questions and discussion topics include:

• Impacts of IL&FC stress, including the risk of government intervention and contract alteration amid political pressures for prompt project completions.
• Current banking environment and trends, including the impact of capital constraints on new credit provision, risk of losses on bank equity holdings, and consolidation of state banks, with potential contamination threats to asset quality in larger merger partners.
• Potential risks to credit growth and liquidity and their impact on investment recovery and economic growth.
• Implications of domestic financial stress for India's external sector vulnerability and the central bank's policy dilemma over domestic and external objectives, including the need for additional monetary policy tightening ahead of the general elections.
• Potential impacts from the enactment of Section 7 of the RBI Act, if confirmed.
• Regulatory imbalance between the banking sector compared with Non-Banking Financial Companies (NBFC).

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IHS Markit Speakers:

Brian Lawson, Senior Economic and Financial Consultant, Country Risk

Deepa Kumar, Sr Research Analyst, Asia-Pacific, Country Risk

Angus Lam, Sr Economist, Banking Risk

Hanna Luchnikava-Schorsch, Principal Economist, Asia-Pacific Economics