New Delhi, December 3: While over 62 per cent, or $58 billion, of the total loan advances to Indian real estate companies by banks and NBFCs are currently “completely stress-free”, around 16 per cent ($14 billion) are under “severe” stress, reveals a study by Anarock Capital.
According to the study, there are loans worth $14 billion, where there have been high leveraging by the concerned developers, who have either limited or extremely poor visibility of debt servicing due to a combination of factors. These are the loans which are under severe stress.
However, on the other hand, 22 per cent (worth $21 billion) loans are under some pressure but can potentially be resolved as the stress on this segment is largely on recovery of interest, and not on principal amount.
Shobhit Agarwal, MD and CEO, Anarock Capital, said that the “stress” loan amount in real estate is not as bad as other major sectors like telecom and steel.
“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,” he said.
Agarwal added that every real estate loan is backed by hard security, which is anywhere between 1.5 times to two times. This means that even if the loan becomes non-performing, there is enough security for the lenders to get a significant portion of their money back.
“In retrospect, there has been continuous shrinkage of lending to Indian real estate in recent years by both banks and NBFCs amidst non-repayment of some loan dues and NBFC crisis post the IL&FS default,” Agarwal said.
One prime reason has been that sluggish residential sales over the last few years completely dried up cash flows for many developers, resulting in unsold inventory pile-up and, thus, their 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 their due diligence before giving loans to developers, the situation is gradually getting ironed out and nearly 84 per cent of the overall loan amount has little or no stress at all, according to Anarock’s research.