Around US$18 billion of the total loan advances to the Indian real estate by banks, NBFCs (non-banking finance companies) and HFCs (housing finance companies) are currently under severe stress, while a majority, around $67 billion, is completely stress-free, according to a report by Anarock Capital.
The stress-free portion accounts for 67% of the total loan advances of US$100 billion.
Another 15%, is under some pressure but has scope for resolution with certainty on at least the principal amount, according to the report.
The report noted that around 18% of the overall lending to Indian real estate is under 'severe stress', implying that there has been high leveraging by the concerned developers who have either limited or extremely poor visibility of debt servicing due to multiple factors.
Shobhit Agarwal, MD and CEO of Anarock Capital, said: "COVID-19 has had a cascading impact across sectors, and 'severely stressed' loans levels in Indian real estate were expected to go up substantially. However, real estate, particularly the residential segment, has fared better than anticipated.
"Towards 2019-end, of the total real estate loan of $93 billion, at least 16% was severely stressed. Despite the devastation of the pandemic over the last one year, only 18% of the total $100 billion loan value falls under this category. This is definitely far better than other major sectors such as telecom and steel."
He also noted that, the entire 'severely stressed' loan value in real estate is spread across more than 50 developers.
In telecom and steel, default by a single company 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 to 2 times.
"Even if the loan is NPA, there is enough security for the lenders to recover a significant portion of their money," Agarwal said
The overall contribution of NBFCs and HFCs (including trusteeships) towards the total lending to Indian real estate is at 63%.
Individually, banks accounted for the largest share of total realty loans with 37% followed by HFCs with around 34%, and NBFCs have 16% and 13% loans given under trusteeships.
Interestingly since 2013, the share of NBFCs and HFCs has grown considerably, at the expense of banks.
However, in the past 4-8 quarters, banks have been more active than NBFCs.
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.