Indian Lockdown Rattles Lenders

India’s embattled financial institutions are facing further challenges attracting overseas funding as the coronavirus pandemic threatens to cut growth in the world’s fifth-largest economy to 30-year lows. 

Loan syndications for Indian borrowers in recent weeks point to growing concerns among offshore lenders of a further deterioration in asset quality as a result of the sharp decline in economic activity and rising unemployment. India enforced a 21-day lockdown on March 25 to combat the Covid-19 pandemic.

In the past month, financial institutions including PNB HOUSING FINANCE and debut borrower HDB FINANCIAL SERVICEShave closed loans with limited syndication.The reception from offshore lenders underscores 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 issues people have had is non-performing assets,” said a loan syndications banker at a global bank. “We are only hoping that there are no fresh spurts of NPAs. 

Otherwise it could be an even longer journey to recovery.”BANKING SECTOR WOESNPAs at Indian banks are not a new concern, with a systemwide bad loan ratio of 9% as of March 2019, according to the Reserve Bank of India. Since the lockdown began on March 25, Fitch has cut India’s GDP growth forecast for the fiscal year ending March 2021 to 2% from 5.1% previously.  

This year could see the slowest growth in the country in 30 years, the ratings agency said. Moody’s on April 2 changed its outlook for the Indian banking system to negative from stable, warning the lockdown will eventually lead to pressure on profitability and capital.India’s banking sector suffered another blow in mid-March when the RBI seized control of beleaguered Yes Bank, the country’s fifth-largest private sector bank, which recorded a surge in gross bad loans to 18.87% of total loans for the quarter ending December 31 from 2.1% a year earlier. 

Non-banking financial companies have been wrestling with tight liquidity following defaults and credit scares that began with missed payments from Infrastructure Leasing & Financial Services in September 2018. Dewan Housing Finance, another major NBFC, defaulted on its debt last June.“Debt capital will continue to remain a challenge for most NBFCs,” said one Mumbai-based banking analyst. “There are lenders and investors who at this point in time are