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Liquidity issues faced by NBFIs to weigh on India's growth prospects: Moody's

Raising concerns over economic growth, global credit ratings agency, Moody's Investors Service has said that liquidity constraints faced by some non-bank financial institutions (NBFIs) in India, after the default of Infrastructure Leasing & Financial Services (IL&FS) in September 2018, will likely tighten credit supply and the country's Gross Domestic Product (GDP) growth rate will slow to just a little over 7% for the fiscal 2019 and 2020. Besides, Indian economy grew at 7.1% in the July-September quarter of FY19, lower than 8.2% in April-June.

Moody's also said that just above 7% growth for fiscal 2019 and 2020, is below an estimated 7.4% outturn in the fiscal year ending March 2018 and below the pick-up in growth that they envisaged a few months ago. It added that any further distress in the NBFI sector will pose significant downside risks to India's growth outlook. The nation's NBFIs are an important provider of credit to the country's economy and, in the fiscal year ended March 31, 2018, accounted for nearly 17% of total loans and one third of total retail loans.

The rating agency further said in a downside scenario, a sharper slowdown in NBFI credit supply would significantly tighten overall credit availability, drive up borrowing costs and reduce economic growth by around half a percentage point over a few years. It noted that weaker nominal GDP growth over a prolonged period would weigh on India's fiscal strength and the overall sovereign credit profile.

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