The flow of credit from the financial sector to real estate companies continued to rise since June 2016, even as their financial health came under stress during the period, the Reserve Bank of India (RBI) said in a report.
Loans given to real estate companies rose to Rs 2.01 lakh crore in June 2019, up from Rs 1.05 lakh crore in June 2016, the RBI said in the Financial Stability Report released on December 27.
RBI also noted that the flow of funds to the real estate sector has continued despite a general slowdown in credit growth over the period.
“Since September 2018 when the IL&FS induced risk aversion was noted, all categories of financial intermediaries have increased their exposures to REs, the sharpest being that of HFCs,” the RBI said.
Housing finance companies’ (HFCs) and non-banking finance companies’ (NBFCs) exposure to real estate also rose to 23.81 percent, up from 12.17 percent and to 9.52 percent from 6.42 percent over four years, the RBI said.
The share of loans given by public sector banks fell to 24.34 percent from 48.57 percent, while that of private banks rose to 30.41 percent from 23.62 percent in the same period.
However, RBI said that the exposure of state-run banks may be understated, given their exposure to a few NBFCs well entrenched in the real estate sector. Also, state-run banks’ exposure, particularly with regard to impairment is fairly large.
The RBI tracked the performance of 310 real estate companies since 2016 in order to get a ringside view of their financial strength. The study showed rise in loan impairment levels in their exposure across financial institutions.
“The aggregate impaired exposures continued to rise steadily over the period of observation, with delinquency levels of all financial intermediaries higher as on June 2019 compared to their June 2018 levels,” the RBI said.