The current round of demonetisation is likely to disrupt the small business ecosystem in the near term, as the segment operates largely in cash. We see challenging times for real estate, small businesses and CV finance. We don’t see NPL risk for consumption businesses but retail demand, especially for housing, may slow down. We are watchful of NBFCs and will track incremental trends closely in SCUF and Shriram Transport Finance followed by Mahindra Finance and Cholamandalam.
The recent currency demonetisation drive sucks out liquidity from the system and will temporarily constrain several segments of the economy, especially those which are largely transacting in cash. We expect normalcy to return over the next few weeks. However, segments that conventionally dominated by black moneyand those that are already overheated may not escape unscathed. Key areas of concern are real-estate lending, loans to self-employed/ loans under property and the overheated CV finance space.
We believe that some segments of consumer-related lending will struggle for growth though we don’t find significant asset quality issues. Housing loans to the salaried (about 75% of total housing loans) will not face any challenges in collections. Almost all home loans above R1 mn are serviced via bank debits or cheques. However, we do expect a slowdown in real estate sales in anticipation of a price correction.