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NBFCs may face Rs 70,000-crore drag from real estate: Report

The agency has thus downgraded the NFBC sector’s mid-year outlook from stable to negative as potential defaults may further weaken wholesale NBFCs and HFCs, which are already facing a crisis

Non-banking financial companies (NBFCs) with heavy lending in the real estate sector may have to brace for a Rs 70,000-crore fallout as refinancing in the cash strapped sector look troubled, The Economic Times reported.

As much as 40 percent of all real estate loans are from NBFCs or housing finance companies (HFCs), a sizable chunk of which is with L&T Finance, Piramal Housing, JM Financial and Altico, India Ratings and Research said.

The agency has thus downgraded the NBFC sector’s mid-year outlook from stable to negative as potential defaults may further weaken wholesale NBFCs and HFCs, which are already facing a crisis, the paper added.

About 65-70 percent of the loan book with NBFCs are under moratorium with only interest payments ongoing while the principal payment would start from the first half of 2020, pointed out Pankaj Naik, the associate director - India Ratings and Research.

A moratorium period is a time during which the borrower is not required to repay the loan. It allows for short-term adjustments in favour of long term returns and especially works for sectors like real estate where the returns come in slowly.

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Naik noted, "Delinquencies may increase on a case-to-case basis. The pace at which refinancing was happening has come down. Not many players are optimistic in taking fresh exposure in real estate space, which will lead to an increase in credit costs."

The high cost of refinancing may also push developers towards asset sales or restructuring to make payments, he added.

Besides the mid-term outlook, India Ratings has also cut NBFCs’ FY20 growth forecast to 10-12 percent from 15 percent in FY19 due to the economic slowdown and funding issues.

The agency said that NBFCs had been "grappling with a double whammy" and had to "increasingly rely on alternative measures to generate liquidity, including through asset sales - securitisation and direct assignments of loans."

The agency has maintained its outlook on asset classes at stable-to-negative for commercial vehicle loans and tractor loans, downgraded the outlook for the loans against property (LAP) segment and gave a negative outlook to large-ticket housing loans.
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