Moody’s see rise in SME loan defaults in NBFCs

New Delhi, Apr 17 (KNN) Hardening interest rates are growing the repayment burden which will increase the defaults on loans to small and medium enterprises (SME) by finance companies in India, said Moody’s.

This rise is expected in the coming quarters, said the rating agency Moody’s, reported Business Standard.

Rising interest rates, increasing costs amid high inflation and a muted operations environment for small businesses have weighed on SME borrowers' ability to meet debt repayments over the past year.

Moody’s, in a statement, said delinquencies for loans against properties (LAP) extended to SMEs in securitised portfolios will continue to increase. A securitised paper is termed as asset-backed security (ABS).

While interest rates remain restrictive in advanced economies, which will add to the risk of LAP delinquencies, India’s economy will remain vulnerable to bouts of heightened financial market volatility.

Despite rising delinquencies, ABS are well-protected due to the deals' structural protections.

Indian LAP ABS have cash reserves and substantial excess spread, which provide deals with liquidity and buffers against losses.  (KNN Bureau)