Many shadow lenders have been effectively shut out of the nation’s credit market as the more than 15-month-old banking crisis raises investor wariness about the financiers’ ability to refinance debt
As the shakeout in India’s credit market shows few signs of abating, one group of financiers is benefiting from the turmoil: shadow banks that provide loans in exchange for gold. In a country deeply attached to the precious metal, whose people stockpile more gold than citizens of any other country, borrowers are increasingly pawning their family jewelry to get cash amid a fundraising crunch.
That’s helped double the share price in the past year of Manappuram Finance Ltd, one such firm, while the stock of Muthoot Finance Ltd, the country’s largest cash-for-gold lender, has jumped 47%. Those financiers’ bonds are also in demand at a time when investors are shunning debt from other shadow banks, which are struggling from lack of funds and credit downgrades.
More than half of the loans from these lenders get repaid in less than six months, providing firms with a steady stream of cash to pay off their own debt and thus avoiding a so-called asset-liability mismatch. The recent rise in gold prices is also a boon. Indian households have almost $1 trillion worth of gold, and the nation is the biggest buyer of the metal after China….
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