Borrowing costs for India’s top-rated shadow financiers
declined last month, indicating that the nation’s prolonged
credit crisis may be seeing some improvement..

“The worst seems to be over for shadow banks that have survived one of the longest credit crises in India,” said Madan Sabnavis, chief economist at Care Ratings Ltd. “They have started to access funds at pre-crisis levels”

Premiums that investors seek to buy AAA rated five-year
bonds of non-bank lenders over government notes with similar
maturities narrowed to a 16-month low in January, helping a
gauge measuring bond spreads to strengthen. Three other indicators
compiled by Bloomberg, covering areas including liquidity and share
performance, were stuck in the same position as the previous month,
with two at levels indicating strength.

A recovery in the health of the nation’s shadow banks, which lend
to everyone from small merchants to business titans, indicates that
steps taken by policy makers to soothe the sector are bearing fruit.
Supporting these financiers is essential to Prime Minister Narendra
Modi’s efforts to jump-start credit flow and revive an economy that’s
set to expand at the weakest in more than a decade this fiscal year.

Banking-system liquidity remained buoyant, and the total outstanding
debt at 50 firms impacted by the crisis stayed high. But a custom gauge
measuring the share performance of 20 such companies was stagnant.

“The worst seems to be over for shadow banks that have survived one of
the longest credit crises in India,” said Madan Sabnavis, chief economist
at Care Ratings Ltd. “They have started to access funds at pre-crisis levels.”

Even for some companies that were less affected by the credit-market freeze,
India’s slowing economy is eroding their financial health. With the fallout
from the deadly coronavirus likely to hurt global expansion, it will be harder
for many of these firms to bolster credit profiles.

The scores attached to each of the indicators have been calculated by Bloomberg
by normalizing the deviation of the latest value of the indicator from its yearly
average and have been assigned on a scale of 1 to 7, with 1 implying weakness and
7 showing strength.