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Demonetisation effect: Huge fall in lending rates in grey market, interest drops from 30 pc to 5 pc

Currently reading: Demonetisation effect: Huge fall in lending rates in grey market, interest drops from 30 pc to 5 pc
India TV Business Desk, New Delhi [Updated:16 Nov 2016, 12:46:33]

Demonetisation has severely hit the under-the-counter lending business with interest rates dropping to 5 per cent from as high as 30 per cent in the grey market.

The real estate business, which is also used to park cash, have also seen a slump as there are no takers for the assets even at big discounts as threat of benami properties has come under tax scrutiny schemes.

Notedly, the grey economy, which is widely prevalent, carries on legitimate business, but uses cash so it can conceal income and pay lower taxes. The grey economy uses cash to buy goods and services and inflates prices for all of us.

Under grey market lending schemes, investors pool in money that is lent to real estate developers, small companies and people in distress at high interest rates. Most of such loans are given in cash and there are no written agreements, reports The Economic Times.

Since Rs 500 and Rs 1000 notes have become invalid, the grey marketeers cannot transact with such notes which has stifled their whole business.

Under grey market lending schemes, investors pool in money that is lent to real estate developers, small companies and people in distress at high interest rates. Most of such loans are given in cash and there are no written agreements. 

“In most cases, the money lent is collected at one place, which is tough now given the situation as there are fears that there could be tax raids. Most of the grey market or informal money lending businesses are in big trouble,” a tax consultant told ET.

Cash transactions have not just fallen in the lending circles but the impact is also trickling down to some of the other investments, like real estate.

 

Investors who buy and sell property while dealing in cash are stuck with the real estate. Many of them are willing to give a discount of as much as 25 per cent on the property price in just about a week after demonetisation. 

The hope is that even if they get 70 per cent of the price in cheque, it would still be better than coming under income tax scrutiny, as the government recently threatened to go after benami properties.

Demonetisation hits grey market- India Tv
Demonetisation hits grey market Photo: PTI