Moody's Investors Services said on Wednesday that the quality of retail and SME loans would deteriorate. These loans account for 44 per cent of the total loans. The global credit ratings agency also said that more than 80 per cent of rated non-financial companies have negative outlook. This comes days after the global credit ratings agency downgraded India's sovereign ratings to Baa3 from Baa2. Moody's has also downgraded long-term issuer rights of eight companies including ONGC, Infosys, TCS, OIL.
The agency said that the risks to the financial system are rising. It pointed out that some sectors were under strain even before the coronavirus pandemic began. Both assets and liabilities for NBFIs would come under strain in the near term, it said, accounting for 10-15 per cent of bank loans.
In the auto value chain, private sector banks are the most exposed. In power sector exposure is about 8-10 per cent of bank loans, the agency stated.
Moody's also pointed towards lower growth, weaker fiscal conditions and rising financial sector stress that would pose challenges to policymaking institutions.
"Our rating action signals downward pressure on the ratings and standalone assessments of most rated banks," it said. It added that more than 80 per cent of rated non-financial companies have negative outlooks or are under review for downgrade. "Two-thirds of the rated infrastructure portfolio has a negative bias," it said.
Moody's stated that the debt burden remains high and deficits have fallen short of FRBM targets.
The agency recently downgraded India's foreign currency and local currency long term issuer ratings to Baa3 from Baa2 and maintained a negative outlook on India. It then downgraded the long-term issuer ratings of eight non-financial companies, Oil and Natural Gas Corporation Ltd (ONGC), Hindustan Petroleum Corporation Ltd (HPCL), Oil India Limited (OIL), Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Limited (BPCL), Petronet LNG Limited, Tata Consultancy Services Limited (TCS) and Infosys Limited. It maintained a negative outlook on these companies.