Rising risk of contagion in India's financial sector, cautions S&P

Indian financial sector is on the boil as the crisis engulfing non-banking financial companies (NBFCs) lingers, raising risks of contagion and capital shortage, according to rating agencies. 

Global rating agency Standard & Poor’s (S&P) said the risk of contagion is rising in the Indian financial sector, where credit markets are charging huge premiums for debt raised by riskier finance companies. The systemic crisis in financial sector may lead to capital shortfall, said another  

The failure of a large finance company could have other consequences, such as draining of available credit to the sector. With the added risk of spreading to real estate companies. Finance companies are the largest lenders to this segment, S&P noted.

India’s finance companies are among the country's largest borrowers and a substantial part of this funding comes from banks.

Meanwhile in a report, Fitch Ratings said Indian banks may face a capital shortfall of about $ 50 billion in the event of a systemic crisis in the NBFC sector.

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