COMFORT
FACTORS- The RBI has got more power
over NBFCs and housing
finance companies - It can intervene to protect
depositors and borrowers in
case of distress - It can supersede the affected
lender’s board and
even order a merger - The government has asked
banks to provide up to
`1 lakh crore liquidity to NBFCs
and HFCs - Even if an NBFC stops lending,
it will keep servicing existing
borrowers - In case an NBFC sells your loan
to another lender, you will still be
serviced by the original lender - If stuck with a partially
disbursed loan, you may
opt for a transfer
orrowers who have taken home loans
from non-banking finance companies
(NBFCs) and housing finance compa-
nies (HFCs) are a worried lot as the sec-
tor has been in the news for the wrong
reasons. No borrower wants to hear
about his property papers being mis-
managed or disruption in loan disburs-
al or abrupt increase in interest rate.
But is there a reason to be worried?
The Liquidity Problem
The biggest reason for the current crisis
is the asset liability mismatch that In-
dia’s shadow lenders are facing. They
were giving long-term loans like home
loans but did not have corresponding
long-term funds.
A significant part of their funds
came from commercial papers (CPs),
which are short-term instruments with
up to one-year maturity. Mutual funds
were buying these, but after IL&FS de-
faulted in 2018, and many other NBF-
Cs followed, mutual funds have not
only almost stopped fresh investments
into these CPs but are also reducing
their exposure by selling at a discount.
“Risk aversion by lenders like mutu-
al funds has resulted in an asset-liability
mismatch. After the IL&FS crisis, there
was nervousness in the markets and
NBFCs were not able to borrow from
banks. This accentuated the crisis,” says
C.S. Sudheer, Founder and CEO, In-
dianMoney.com.
Some lenders have deployed a big-
ger part of their funds in corporate and
developer finance, and since there have
been a number of defaults by real estate
developers, most banks and mutual
funds are unwilling to refinance such
exposure. Those with greater retail
exposure are relatively better off. The
troubled lenders, whose only income
is EMIs being paid by retail home loan
borrowers, are finding this income sig-
nificantly less than their short-term
principal repayment obligations aris-
ing due to maturity of these CPs. With
refinance options from banks and mu-
B
tual funds drying up, they are facing a
liquidity squeeze.Are Your Property Papers Secure?
What happens to property papers if the
lender is in distress? “We do not think
that property-related papers are a big
issue. Just like stamp duty is paid and
property is registered with the govern-
ment, while buying a property using
a loan, the mortgage is also registered
with the government. After registration,
the institutions (lenders) take custody
of the property documents. As soon as
the borrower clears the outstanding
loan, the institutions are bound to re-
lease the papers back to the borrowers,”
says Amar Pandit, Founder, Happy-
ness Factory. So, unless you default on
your repayments, your property papers
are safe.
You can also set aside concerns
about lenders going bankrupt. “In case
of a severe crisis, weak NBFCs are likely
to be taken over by the stronger ones.
The RBI has eased the risk-weightage
norms for banks (capital to be set aside116 I BUSINESS TODAY I August 11 I 2019