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Shadow Banks Pulling Back On Loans To Small Businesses: Moody’s

The liquidity disaster triggered after the default of IL&FS inflicting NBFCs to drag again on loans to MSMEs.


The liquidity disaster triggered after the default of IL&FS is inflicting the non-banking monetary and housing finance firms to drag again on loans to micro, small and medium sized enterprises (MSMEs), Moody’s mentioned on Wednesday.

“The value of loan against property (LAP), assets under management by HFCs and NBFCs increased by 8.3 per cent over the six months leading to December 2018, down from 15.4 per cent growth over the previous six months,” Moody’s mentioned.

Furthermore, in line with Moody’s, it doesn’t count on LAP lending by NBFCs and HFCs to pick-up considerably within the subsequent few months too because the working surroundings stays difficult for them as they proceed to face points with accessing funds.

“Indian non-banking financial companies (NBFCs) and housing finance companies (HFCs) are pulling back on loan against property (LAP), lending to micro, small and medium sized enterprises (MSMEs) because of the funding squeeze caused by the liquidity crisis in the country’s financial sector,” Moody’s mentioned in a observe.

This case is credit score unfavorable for asset-backed securities (ABS) backed by LAP to MSMEs, as a result of it would cut back refinancing choices for these small companies, probably resulting in mortgage delinquencies and defaults, the brokerage agency added.

Apart from, it mentioned that the declining actual property costs in some cities and a slower tempo of worth progress in others has curtailed refinancing of LAP and harm restoration prospects for defaulted loans. 

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