INSUBCONTINENT EXCLUSIVE:
MUMBAI: The market for loans against property (LAP), among the borrowing avenues that fuelled runaway growth among nonbanking finance
companies until the recent liquidity squeeze, appears to be grinding to a halt as lenders are not keen on increasing their exposure,
analysts and industry executives have said.
The borrowing instrument was the preferred tool for small businesses and powered the expansion
for the lenders over the past five years.
With NBFCs holding on to cash and the cost of funds going up, LAP has become unviable as rates
have been raised by up to 2.5 percentage points, said the people cited above
MD, Indiabulls Housing Finance
short-term borrowings or illiquidity in the underlying asset being financed
Housing finance companies, with a large exposure to developers and large-ticket LAPs, face the challenge of losing both growth and margins
Companies typically borrowed short term, giving an illusion of shorter-tenure assets, encouraging reliance on shorter-tenure liabilities
based on the assumption that the loans will be rolled over, it said
The frequency of balance transfers has almost come to a halt under the tighter liquidity scenario.
LAP is an important product for the
micro, small and medium enterprises (MSME) sector, which accounts for a third of gross domestic product and employs 111 million people
It represents 45 per cent of manufacturing output and 40 per cent of total exports, according to Reserve Bank of India data.
Tighter
liquidity has led to the increased cost of funds for finance companies, which facing difficulty in rolling over liabilities because they
