Glossarytaught in M5.02, M2.02
Gearing
Also called gearing multiple, borrowings to equity.
Borrowings divided by equity, the standard leverage measure for a non-bank lender.
With ₹18,000 crore of borrowings and ₹4,000 crore of equity, a lender is geared 4.5 times, inside the ordinary Indian range of three to six.
Above seven or eight times the model becomes fragile, because a small loss on the asset side consumes a large share of the equity and the wholesale funding that supports the book reprices at that same moment.
Gearing plus a funding mismatch is the combination that has ended Indian non-bank lenders.