Total real-estate loan equals $ 93 billion, over 62 per cent completely stress-free
Over 62 per cent or about $ 58 billion of the total loan advances ($ 93 billion) to Indian real estate by banks and NBFCs/HFCs are currently completely stress-free, reveals a study by ANAROCK Capital. Another 22 per cent (approximately $ 21 billion) is under some pressure but can potentially be resolved. In fact, the stress on this segment is largely on recovery of interest, not on principal amount.
That said, $ 14 billion (or 16 per cent) of overall lending to Indian real estate is under ‘severe’ stress, meaning that there has been high leveraging by the concerned developers who have either limited or extremely poor visibility of debt servicing owing to a combination of factors.
“The stress loan amount in real estate is not as bad as seen in other major sectors like telecom and steel,” says Shobhit Agarwal, MD & CEO, ANAROCK Capital. “For instance, the entire ‘severe stressed’ loan value in real estate is spread across more than 50 developers. In the telecom or steel industries, default by a single company alone equals a sizable portion of the overall stress in the real-estate sector. Also, every real-estate loan is backed by hard security, which is anywhere between 1.5 times and 2 times. Even if the loan is an NPA, there is enough security for the lenders to get a significant portion of their money back. Even if defaulting developers decide to sell their real estate at a discount, there is enough margin for them to pay back.”
Meanwhile, HFCs accounted for the largest share of total realty loans equalling 38 per cent, followed by banks, which comprised nearly 34 per cent, while NBFCs have 28 per cent (including loans given under trusteeships). Of these, banks and HFCs are much better placed with 70 per cent and 65 per cent of their lending book in a comfortable position. However, it also comes as no surprise that nearly 58 per cent of the total NBFC lending is on a watchlist.
“In retrospect, there has been continuous shrinkage of lending to Indian real estate in recent years by both banks and NBFCs/HFCs amid non-repayment of some loan dues and NBFC crisis after the IL&FS default,” says Agarwal. “One prime reason was that sluggish residential sales over the past few years completely dried up cash flows for many developers, resulting in unsold inventory pile-up and, thus, inability to service their loans. Moreover, some developers have even filed for bankruptcy in the backdrop of stricter regulatory norms under RERA.”
However, with both banks and NBFCs/HFCs now doing due diligence before giving loans to developers, the situation is gradually getting ironed out. Nearly 84 per cent of the overall loan amount has little or no stress at all. Going forward, residential sales are likely to pick up because of multiple measures being taken up by the Government to provide relief to the sector. This itself will help developers to repay their loan dues.