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NBFCs pulling back on loans to MSMEs: Moody's
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SME Times News Bureau | 11 Sep, 2019
The liquidity crisis triggered
after the default of IL&FS is causing the non-banking financial and
housing finance companies to pull back on loans to micro, small and
medium sized enterprises (MSMEs), Moody's said 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 said.
Moreover, according to Moody's, it does
not expect LAP lending by NBFCs and HFCs to pick-up significantly in the
next few months too as the operating environment remains challenging
for them as they continue to face issues 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 said in a note.
This situation is credit
negative for asset-backed securities (ABS) backed by LAP to MSMEs,
because it will reduce refinancing options for these small businesses,
potentially leading to loan delinquencies and defaults, the brokerage
firm added.
Besides, it said that the declining real estate
prices in some cities and a slower pace of price growth in others has
curtailed refinancing of LAP and hurt recovery prospects for defaulted
loans.
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