Hyderabad: A lackluster recovery in the Indian real estate market could force banks take steeper haircuts while recouping over Rs 1,35,000 crore ($20 billion) loans extended to real estate developers in the country.
“This $20 billion stress is just at banks. We don’t even know what level of non-performing loans is there in non-finance companies’ books since their recognition norms are more relaxed and bad loans are not really coming out,” S. Sriniwasan, MD, Kotak Investment Advisors, told Bloomberg.
According to a Bloomberg report, “banks are taking control of land parcels and unfinished projects that can be sold along with loans” to recover their dues.
However, financial institutions could find it difficult to recover their loans in the wake of poor demand — which fell over 40 per cent in the last four years — and a 20 per cent drop in prices across the market.
According to a Knight Frank report, residential property prices continued to fall across major cities and sales were about stagnant in the first half of 2018. The upcoming elections, rising inflation and interest rates could further dampen the buying sentiment in the real estate, making the task of recovery difficult.
The Bloomberg report also claims that an oversupply of land parcels in the market is weighing down on pricing — a gainful prospect for ARCs.
However, the banks are reluctant to accept haircuts to end the process of loan recovery at the earliest. “Banks have limited head room and expertise in bringing a stressed realty project back on track and hence it makes sense for them to sell down the loans and assets to firms specialising in the segment. However, their lack of willingness to take steep hair cuts has been delaying some of these deals,” Kiran Shing-wekar, CEO of Indiabulls ARC said to Bloomberg.
