Tough road ahead for MSME recovery due to loan delinquencies: Moody’s

Despite government stimulus in the manner of providing guarantees on loan to MEMS, which will mitigate the risks arising from defaulted loans, the recovery path of MSME is going to be an arduous one owing to the increasing rate of loan delinquencies, as it is projected by credit rating agency Moody’s Investors Service.

According to Dipanshu Rustagi, assistant vice president and analyst at Moody’s said, “As the economy slows, SME loan delinquencies – which have been on the rise since January – will continue to increase and property prices will face increasing pressure.”

This will challenge SMEs’ refinancing of loans against property (LAP) and hurt the recovery prospects for defaulted loans, in turn affecting the quality of the Indian SME ABS that we rate, which only entail LAP,” Rustagi added.

As most of the Indian SME have loan against property, secured by residential properties in urban and metropolitan areas except in same cases when they are secured by commercial properties, recovery of outstanding debt amounts by lenders will not be possible amidst declining property and consequentially Lenders will also be more cautious with LAP lending, which will impact the refinancing options adversely.

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