Grade A developers: about 75% of the total lending is safe
At least 67%, or approx. US$67 billion, of the total loan advances of US$100 billion to the Indian real estate by banks, NBFCs and HFCs is currently completely stress-free, reveals a latest study by ANAROCK Capital. Another 15% or approx. US$15 billion is under some pressure but has scope for resolution with certainty on at least the principal amount.
The study noted that US$18 billion, or 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.
COVID-19 has had a cascading impact across sectors, and ‘severely stressed’ loans levels in Indian real estate were expected to go up substantially, Shobhit Agarwal, MD & CEO – ANAROCK Capital, said of the study in a release on 26 July 2021.
“However, real estate – particularly the residential segment – has fared better than anticipated. Towards 2019-end, of the total real estate loan of US$93 billion, at least 16% was severely stressed.
“Despite the devastation of the pandemic over the last one year, only 18% of the total US$100 billion loan value falls under this category. This is definitely far better than other major sectors such as telecom and steel,” he said.
Moreover, the entire ‘severely stressed’ loan value in real estate is spread across more than 50 developers, according to Agarwal.
“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.”
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 approx. 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.
Of these, banks and HFCs are much better placed with 75% and 66% of their lending book in a comfortable position. Not surprisingly, nearly 46% of the total NBFC lending is on the watchlist.
About 75% of the total lending to Grade A developers is safe. This presents a comfortable outlook because out of the total loans given to real estate, more than US$73 billion is given to Grade A builders. Of this, US$55 billion is safe and under no stress.
On the other hand, a high amount of realty loans given to Grade B and C developers needs strict monitoring. Close to 55% of the loans given to Grade B developers is under ‘severe’ stress; for Grade C developers, it is over 73%.
In terms of cities, Pune and NCR are both high on stress with 40% and 39%, respectively, of the total loan given to them, followed by Mumbai with 37%. Hyderabad, Kolkata and Chennai are well placed with just 3-4% stress (however, their overall share of the pie is limited). Bangalore with a 15% share of overall lending has 76% book with no stress at all. #investment #banking #projects #debts /fiinews.com
