Economics · Economy
Read the given statement and answer the following question: After GST and demonetization, rising interest rates are set to hurt SMEs. Interest rates for loans against property (LAP) extended to small and medium-sized enterprises (SMEs) are set to rise. 'Rising interest rates, in addition to the muted operating environment for small businesses in India, will lead to an increase in delinquencies on LAP extended to SMEs'. The introduction of the goods and services tax (GST) and the government's demonetization policy have placed stress on the SME sector, which rising interest rates will exacerbate. Which of the following can be logically inferred from the statement above?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The ABS backed by LAP extended to SMEs have non-amortizing cash reserves that eliminate all kinds of financial risks for lenders.
- 2Rising interest rates will limit refinancing options and increase repayment amounts, increasing risks for asset-backed securities (ABS) backed by LAP to SMEs.✓
- 3Losses will be completely avoided because these loans are secured and have low loan-to-value ratios.
- 4Rising delinquencies over the last few years would force lenders to be more cautious, limiting refinancing options and adversely affecting existing borrowers.
Correct answer
Rising interest rates will limit refinancing options and increase repayment amounts, increasing risks for asset-backed securities (ABS) backed by LAP to SMEs.
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