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Trouble in realty: Loans worth $14 bn under 'severe' stress, says study

The entire severe stressed loan value in real estate is spread across more than 50 developers, says a report

Representative image
Representative image

Nearly $14 billion worth of loans to the real estate sector by banks and NBFCs/HFCs is currently under ‘severe’ stress, according to a study by ANAROCK Capital.

'Severe' stress essentially means the concerned developers are highly leveraged and either have limited or extremely poor visibility of debt servicing due to a combination of factors, as per the report.

ANAROCK also pointed out that while $58 billion of the total loans is currently completely stress-free, there is some pressure on about $21 billion which can potentially be resolved.


The entire ‘severe stressed’ loan value in real estate is spread across more than 50 developers, it said.

In terms of the overall realty loans with respect to builder-type, out of the total $93 billion realty loans, Grade A builders received over $65 billion worth of loan advances, followed by Grade B players at $27 billion and Grade C developers a mere $1 billion.

This presents a relatively safe outlook because more than 72 percent of the loans given to Grade A builders is safe and under no stress, the report said.

However, loans to Grade B and C developers need strict monitoring. Nearly 28 percent of the loans given to Grade B developers is under ‘severe’ stress while for Grade C developers it is over 19 percent. However, this collectively equals to less than mere $8 billion of overall stressed loan.

Grade A developers are players that are currently active, with excellent execution track record and having till date developed real estate in excess of 3 mn sq ft. Grade B developers include those with an established execution track record having developable area between 1 mn sq ft and 3 mn sq ft and are currently active. Grade C comprises of players with less than 1 mn sq ft developable area.

“There has been continuous shrinkage of lending to Indian real estate in recent years by both banks and NBFCs/HFCs amidst non-repayment of some loan dues and NBFC crisis post the IL&FS default,” said Shobhit Agarwal, MD & CEO – ANAROCK Capital.

“One prime reason was 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,” he said.

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First Published on Dec 2, 2019 09:37 pm
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