New Delhi: Online lending portals like Paisabazaar, Deal4loans and CashCare Technology have reported a surge in demand for business loans after India banned Rs500 and Rs1,000 notes.
On Tuesday evening, Prime Minister Narendra Modi announced that these high-value notes would cease to be legal tender from midnight as part of the government's war on black money.
“We have witnessed a 1.5X increase in demand for business loans since government demonetized Rs500 and Rs1,000 currency notes. Small traders and manufacturers, where most of the dealings run in cash, have been suddenly starved of working capital because of notes being invalidated,” said Naveen Kukreja, CEO& co-founder,Paisabazaar.com.
"Once the loans are transferred to the account of the customers, they can make payments to the suppliers by netbanking or cheque. There is no upper limit imposed on such transactions, unlike that of cash withdrawals from banks and ATMs.”
Most loan enquiries are from self-employed businessmen, Kukreja said.
“We believe this move by the government, while spiking demand for loans in the short term (till the cash is exchanged or regenerated), will keep the demand high for formal loans in the medium to long term, as the shadow economy reduces in size, and customers look at formal sources of borrowing for their businesses,” he added.
Paisabazaar, Deal4loans and CashCare are online marketplace financial technology (fintech) companies which allow customers to compare products across banks and non-banking finance companies. They give consolidated lists of loan products, charges and helps to close enquiries fast to reduce costs.
Rishi Mehra, co-founder, Deal4loans.com shared similar views. “Queries for business loans have been 60-70% higher than the day-to-day requests that used to be recorded before the announcement on demonetization of currency. There has been 40-45% increase in ‘loan against property’ requests coming from the self-employed segment. Those who do not have big businesses are willing to mortgage their property to meet their working capital requirement,” Mehra said.
Many businessmen fear payments from their customers to whom they have sold goods will be delayed in the next 15-20 days, shrinking their working capital. Loans from formal sources have become the only source to keep their businesses running as informal lending options are not available due to the cash crunch.
“A lot of cash will be accumulated with the banks in this quarter so in the next quarter, they would try to make money by lending it out by bringing the rates down. With the low interest rates and low property prices, the real buyers would be the salaried class and people would increase the loan offtake from loan segment of Rs30-50 lakh,” added Mehra.
CashCare Technology said it has seen higher small-ticket lending since Tuesday.
“People borrowed from Rs100 to 10,000. It was largely attributed to the lack of cash in the system. Now the consumers have seen the benefit of credit to beat short-term cash crunch, we foresee more people to continue usage for better financial planning. We saw around 20-30% increase in transactions in the last few days,” said Vikas Sekhri, founder, CashCare Technology.
“On the higher-ticket loans, such as travel, consumer durable or education loans, decrease in black money would increase electronic payments and credit is a good way to maximize value of money.”