Mumbai: The loan against property (LAP) portfolio is getting hazardous for financiers as delinquencies could significantly rise in the next four quarters and may even exceed five per cent on a static basis for a few players, says India Ratings and Research (Ind-Ra).
A combination of stagnant property prices especially in metros and large cities, which are the primary markets for large and medium ticket LAP, and squeeze on refinancing due to risk aversion building up in some financiers, is bringing stress to the fore.
This is further worsened by financiers acce-pting non-residential properties as collaterals in order to expand their business in the highly competitive environment. It could go as high as 30 per cent of the portfolio for some players. While loan-to-value percentage is lower for non-residential properties, realisation on liquidation is also lower for these properties.
Ind-Ra’s study on the recovery of SME loans pool acquired by asset reconstruction companies (ARCs) through non-residential collaterals indicates a poor recovery at 25 per cent of principal outstanding.
The MSME sector remains stressed and cash flows remain tight, impacting the repayment capacity. According to Ind-Ra’s study of a sample size of over 1,000 MSMEs with debt of below Rs 10 crore indicates that the revenue growth of small businesses declined to single digits in FY15.
