Photo: Mint
Photo: Mint

Quick loans hit a road block

When liquidity dries up in the system and demand continues to exist for credit, it has an impact on disbursements as well as interest rates.

New Delhi: If you are planning to take a loan through an app or a website, you are likely to find it difficult to get a loan. You may have a credit score, credit history, good income and repayment capability, yet your loan application may not go through.

Here is why:

Impact of liquidity crunch

The financial institutions are facing liquidity crisis in the system. “Depending on each lender, they have taken actions to manage the crisis for now. The names which are public include Indiabulls Finance, DHFL and IIFL. They have stopped lending especially in the housing segment considering these are large ticket loans for longer tenure. Some of the larger lenders have stopped it temporarily," said Naveen Kukreja, CEO, Paisabazaar.com.

Everyone is trying to find more capital. To large NBFCs, the lenders are banks and mutual funds. “To the fintech companies, the lenders are large NBFCs and they are facing pressure and slowdown. They want to play wait and watch. Banks don’t have liquidity issues but they are considering if they should lend to NBFCs," said Bhavesh Gupta, chief executive officer, Clix Capital.

The larger noise is around asset liability mismatch.

“The problem for home finance companies is higher than the regular NBFCs. It is very evident that the mutual fund pipe has dried up. The key reason is not worry but a combination of factors such as due diligence. A lot of liquidity difference has got marginalise since people lowered disbursement," said Gupta.

What it means for you

When liquidity dries up in the system and demand continues to exist for credit, it has an impact on disbursements as well as interest rates. “Interest rate on loans has increased in the past one month. From a borrower perspective, some lenders will not be there which existed pre-September. The people who are there in general have increased interest rate by 100-300 basis points," said Kukreja. The borrowers who are new to credit and at the lower end of the spectrum in terms of credit and hence largely funded by new age-fintech and more focused NBFC, their impact will be higher. “There is considerable slowdown to that segment. However, the flow of credit which had got lowered in October is coming back," said Gupta.

Experts say it is difficult to guess considering the uncertainty in the macroeconomic environment. However, in the next quarter it should get better but interest rates will continue to remain higher.

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