How Can NRI HNIs Leverage Loans Against The Assets They Hold In India?

NRI represents the cream de la crème crowd of India - Just after COVID we clocked 32 million NRIs. The total wealth accumulation for the NRIs all over the world is nearly 1.5 trillion dollars. India also became the first country to send over 100 Billion value of inward NRI remittance in 2022.

High net-worth Non-Resident Indians (NRIs) have investable assets over $1 million, excluding their primary residence. The total net worth of NRIs world-over is well over $1 trillion which is invested in a combination of financial assets, real estate, business investments, and other assets. With fintech services at their disposal, some of the asset classes can be collateralised and leveraged for a low cost credit-line.

Some of the ways in which NRIs can obtain loans against their assets are:

Loan against property (LAP): As per the JLL report estimates, real estate investments make up nearly 23% of the investment portfolio of HNIs. While there are benefits of real estate investments in the form of long-term security, claiming tax-benefits, lower volatility and so on, a major drawback stems from the indivisible nature of a real estate investment, which can cause liquidity issues during stressful periods.

High net-worth NRIs can protect themselves from illiquid periods by leveraging their residential or commercial properties in India. This way, they can enjoy the benefits of capital appreciation that follows stressful periods by retaining ownership, while also utilising liquidity offered by banks and non-banking financial companies (NBFCs) through collateralization in times of need for cashflow. Lenders offer these loans at competitive interest rates, with advantages in terms of loan tenures for long durations ranging from 5 to 20 years.

Loan against securities (LAS): Financial assets in the form of securities can make up well over 50% of the portfolio of HNIs. While these assets are usually liquid, they have higher volatility.

NRIs can also avail loans against their investment in financial instruments like stocks, bonds, mutual funds, or fixed deposits held in India. Dematerialisation of securities and digital infratech of asset holding depositories have paved the way for a more interoperable loan against securities. The depository leaders in the market such as CAMS, NSDL and Karvy have developed the necessary digital infrastructure to enable an ecosystem for secured lending. Starting with asset identification and verification, these depositories provide APIs to pledge and de-pledge assets for collateral against a loan. The lender can digitally fetch all the securities held by the user, introducing low-cost liquidity into the system for borrowers willing to pledge their assets for a loan at ease.

NRIs that require cash flow back in India have to bear exceptionally high costs of international money transfers that can range around 5%.

Moreover, selling any assets for cash can attract capital gains and income tax given the higher brackets applicable to HNIs.

Both these reasons make it attractive for HNI NRIs to seek out other avenues of cash and asset management. At the pace Indian fintech is developing products & services, it wouldn't be long before NRI's will be able to deploy their wealth across all asset classes to access low-cost liquidity while retaining ownership of their growing asset simultaneously.

On the other hand, HNI NRIs who have surplus assets would be happy to channelise their investments into India. By lending surplus funds to Indian borrowers, NRIs can improve the rate of return on their investments, given the higher interest rates in India as compared to the rest of the world.

The digital infrastructure being developed in India will be a tremendous boon for NRIs. On the one hand, NRIs could potentially invest any surplus savings into secured lending in India to obtain a much higher return compared to their country of residence. On the other hand, NRIs seeking cash flow liquidity in India can save up on transaction costs, while simultaneously retaining ownership of their assets by using an asset-backed collateral loan via a lender in India.

As the industry develops, $ Trillions of liquidity would be unlocked for borrowers to utilise at ease, while investors could potentially obtain risk-free assets to lend upon that provide a predictable interest income. Such a financial ecosystem will remove multiple frictions that NRIs and HNIs have faced in the past and transform the way transactions are done in the new digital India.

The views and opinions stated in the content belong to Mr. Shreyans Nahar, Co-founder CEO, Finsire