Fitch Ratings, CRISIL, SBI Research see India economy shrinking in FY21

CRISIL said it expected the current quarter's GDP to shrink 25 per cent year on year.

Fitch ratings, CRISIL, and SBI Research have drastically cut India’s economic growth forecast in the current fiscal year due to a prolonged lockdown. While both Fitch and CRISIL projected the economy to contract 5 per cent, from their earlier estimates of the economic growth at 0.8 per cent and 1.8 per cent, respectively, SBI Research slashed economic contraction to 6.8 per cent from earlier 4.7 per cent.

CRISIL said it expected the current quarter’s GDP to shrink 25 per cent year on year.

In its latest report, CRISIL said it would really be a long road to recovery and going back to the pre-Covid-19 trend level of gross domestic product (GDP) in India will not be possible for the next three fiscal years. The lockdown extension, higher economic costs, and an economic package that lacked muscle are the three key reasons why CRISIL has downgraded the GDP forecast.

ALSO READ: FY21 GDP to contract 5%; pre-virus level unlikely in next 3 fiscals: Crisil

“The economic costs, now beginning to show up in the hard numbers, are far worse than our initial expectations. Given one of the most stringent lockdowns in the world, April could well be the worst-performing month for India this fiscal year,” it said.

Though the agency expects non-agricultural GDP to contract 6 per cent, agriculture could cushion the blow by growing at 2.5 per cent in FY21, CRISIL said.

SBI also calculated GDP growth taking bottom-to-top approach than earlier top-to-bottom one. As such, group chief economic advisor Soumya Kanti Ghosh estimated the district-wise, zone-wise loss in GSDP for each state and found that total GSDP loss due to Covid-19 for states stands at Rs 30.3 trillion, which is 13.5 per cent of total GSDP.

Banks' FY19 retail loan growth slipped to 12%, slowest in 5 years: CRISIL

Adjusted for securitisation, loan book grows at 12% as against 16% in FY18.

Business Standard : While private consumption decelerated to 4.1 per cent in the first half (H1FY20), the data suggests that retail lending of banks grew 16.6 per cent, which is twice the rate at which overall bank credit is growing. However, there’s catch.

According to CRISIL, a large chunk of the incremental retail loans disbursed by banks was used to buy retail loan portfolios of non-banking financial companies (NBFCs), which have been struggling for over a year to raise funds.

Therefore, if we exclude loans disbursed to buy off pooled assets of NBFCs, the growth in retail lending of banks is actually slower than it has ever been in the last five years. “The slowdown in retail credit growth reflects both macroeconomic challenges, which have constrained loan demand, and fewer loan sanctions by banks because of risk aversion,” said CRISIL.

Growth in lending after deducting securitisation flows shows a fall from 16 per cent in FY18 to around 12 per cent in FY19 and H1FY20. This is the slowest in the last five years, said CRISIL.

H1FY20, retail securitisation volume grew 39 per cent, while it had doubled in FY19. With the shadow banking sector facing scarce liquidity, NBFCs and HFCs have been increasingly relying on securitisation to be in the game. While the banks turned cautious in lending to NBFCs via the traditional route, they were more than happy to buy good retail assets of the NBFCs, HFCs.

According to CRISIL, overall bank lending for securitisation rose to 31 per cent of incremental bank credit in FY19, compared to 17 per cent in FY17 and 11 per cent in FY15. In H1FY20, this climbed to 37 per cent. About half of the securitisation transactions was for home-loan receivables, while a quarter was for vehicle-loan receivables and around 11 per cent for microfinance receivables.

“The public sector banks depend on securitisation much more than private sector banks do. The private banks have their own risk management systems that may not be available to all PSBs,” said Ashvin Parekh, managing director of Ashvin Parekh Advisory Services.

Analysts believe that the deceleration in retail bank lending is not sharper for large lenders such as HDFC Bank. However, if the overall economy continues to remain under pressure for long, then even large banks could see moderation in growth.

Some experts do not see this as a major challenge in terms of stock performance. In a downturn situation such as this, maintaining asset quality is more important than aggressive growth.

Why do credit rating agencies keep missing big Indian company defaults?

India's major rating firms include Crisil, the Indian unit of S&P Global; ICRA, the local unit of Moody's Investors Service.

Mounting debt failures in India have been catching rating companies off guard, underscoring continued challenges a year after the landmark failure of shadow bank IL&FS increased scrutiny of the industry.

Defaults at companies including Dewan Housing Finance Corp., Cox & Kings Ltd. and Altico Capital India Ltd. have occurred even as their long-term ratings indicated very low to moderate risk of non-payment.

“Raters have not been able to detect stress in time,” said Ashutosh Khajuria, chief financial officer at Federal Bank Ltd. “Cutting credit profiles after the defaults is no rocket science.”

There’s a lot at stake as India tries to navigate a shadow-banking crisis and expand its debt market. The lack of more forewarning on payment problems has fueled questions about the quality of ratings, and could keep some investors away from corporate bonds, hindering market development.

India’s major rating firms include Crisil, the Indian unit of S&P Global; ICRA, the local unit of Moody’s Investors Service; Fitch-owned India Ratings & Research; and Care Ratings.

Crisil declined to comment on industry practices, adding that it didn’t rate most of the large credits that defaulted recently. ICRA, Care and India Ratings & Research didn’t immediately comment.

The securities market regulator strengthened disclosure rules earlier this year after rating firms failed to give ample warning on IL&FS group’s defaults from 2018, which triggered a prolonged cash squeeze in the nation. They now have to reveal annual default rates among the companies they evaluate.The new rules are set to improve the quality of ratings in the industry over time, said Somasekhar Vemuri, senior director at Crisil.

Business Standard