Credit scores of several non-banking financial companies (NBFCs) were downgraded by S&P Global Ratings due to liquidity risks amid the pandemic-induced economic downturn.

The rating company cut state-owned Power Finance Corp and Bajaj Finance Ltd into junk territory, according to a statement dated Friday. Shriram Transport Finance Co Ltd and Manappuram Finance Ltd were lowered deeper into non-investment grade.

Liquidity stress could be high for wholesale lenders with large exposure to property developers, companies without a strong parent, or companies with perceived weak governance, S&P analysts said. Credit risks remain very high for finance companies in India.

The worlds strictest stay-at-home measures to contain the pandemic have put the nations business and investment activities in deep slumber, adding to the risks for the shadow lenders who give loans to everyone from small merchants to tycoons. S&P sees a 5 per cent contraction in Asia’s third-largest economy in the 12 months to March, which would be the first in more than four decades.

Moody’s Investors Service also warned earlier this month that the stress among the lenders may be deeper and broader than it thought. A more prolonged credit crunch would hurt India’s economic growth further, and that in turn would increase the pressure on the financiers balance sheets, the S&P Global Ratings said.

The nations shadow banking industry had already been facing strains since 2018, when the shock failure of financier IL&FS Group led to broader sector scrutiny.

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