Consumers who have Partially Drawn-Down their Loans Stuck between Devil and Deep Sea

It has been nearly 13 months since the first sign of markets panicking in the aftermath of IL&FS default and the subsequent hammering down of the BFSI stocks. Loans.

Enough has been speculated and muck thrown at the industry. Many experts have suddenly materialised and questioned the veracity of B2B funding and the associated business model of HFCs or NBFCs.

For a nation that's growing and for whom infrastructure development is a critical component, it cannot aim to grow without wholesale lending happening. If each of the players sticks only to retail financing, then the assumption that growth will happen with only equity infusion means that potentially only foreign capital can do that. And that would be the death knell of Indian entrepreneurs. Especially for the regulated segments where regulators prefer Indian control!

Enough has been written on the liquidity issue in the system. Yes, the banks might have liquidity and cannot lend as their sectoral exposure limit has been met. Unless they have an exemption to increase (even temporarily) those sectoral limits, they cannot. And, importantly, no one wants to be unduly questioned after their retirement!

India has sufficient demand on the asset generation side. Liabilities have always been a challenge. Ignoring the narrative about deepening debt markets, if you shut the liabilities tap for any entity for few days or weeks, depending on the obligations to be met, any entity will flounder. Ask the banks on how they would manage their asset-liability mismatch without access to repo window or FDs or sovereign as parent!

And these have been well used by the rating agencies by making guinea pigs out of few entities, to keep downgrading them, in spite of then-available-liquidity-to-meet-obligations. All in the fear, post IL&FS goof up. Any decision questioned post facto and then reported widely as "being investigated" will always have a negative tone! In a social media era, you are pronounced guilty and then forced to use disappropriate amount of time and resources to quell the rumours.

For a stock listed on the exchanges, delivery volumes also indicate the speculation on the said stock. When the F&O volumes are more and the margin-money almost nil, it's a speculators delight! And that's what we saw in the market. Ideally, increasing the margin money could have curbed punitive speculation.

And more importantly, when some sections of the media blindly speculate or write chatter without data verification, it creates further panic. Especially when some of the media do it during prime trading hours! It might be prudent to bring in a regulation to check on the stock trades done by media commentators and players. Very similar to the directors on boards of companies declaring their investments and the trading restrictions (whenever due) also applicable to their family !

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Why make the sector as the poster-boy of everything wrong? Why vilify it? Why make scapegoats? Why create slowdown in the economy?

Especially when we don't accept that there is a systemic slowdown in the economy, the negativity and panic it spawns with the larger section of the population, who are bearing the brunt by not having access to formal credit. And let's not rush into the political debate here. Credit access to any large business is equally important as it generates tax revenues, employment etc. It is as important as credit access to an MSME as it creates an entrepreneurship ecosystem.

What happens to those who were dependant on these NBFCs/HFCs? Well, those consumers who have partially drawn-down their loans are stuck between the devil and the deep sea; they would need funding cycle to close fully so that their purchase can be completed. In cases of HFC consumers, they would not be able to pay the builder in full, to take possession of their property and yet would have EMI to fulfill. (IANS)