Mumbai: The flow of funds from the financial sector to the real estate sector has doubled in the last four years despite a general slowdown in credit growth post-the IL&FS crisis, said the Reserve Bank of India in a report. Since September 2018, when the IL&FS induced risk aversion was noted, all categories of financial intermediaries have increased their exposures to real estate companies, the sharpest being that of housing finance companies.
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 25th edition of the Financial Stability Report released on Friday.
The aggregate share of housing finance companies (HFCs) and private banks (PVBs) increased while state-owned lenders’ aggregate share to real estate companies reduced sharply. However, this might, understate the exposure of public sector banks (PSBs) to the sector given their exposure to a few NBFCs well entrenched in the real estate sector, noted the RBI.
HFCs’ exposure to real estate rose to 23.81 per cent as of June 2019, up from 12.17 per cent in June 2016. The exposure of non-banking finance companies (NBFCs) to the real estate sector rose to 9.52 per cent as of June 2019 from 6.42 per cent in June 2016 while the share of loans given by PSBs nearly halved to 24.34 per cent as of June 2019 from 48.57 per cent. The share of private sector banks rose to 30.41 per cent from 23.62 per cent during the same period.
Home financiers have collectively lent around Rs 47,900 crore to builders as of June 2019, up from Rs 12,770 crore in June 2016. But the exposure in absolute terms did not change much for state-owned lenders.
The RBI tracked the performance of 310 real estate companies since 2016 that showed that the rate of default among the real estate-related firms rose in the current financial year.
“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.
The system-wide credit losses of banks jumped from 5.74 per cent in June 2018 to 18.71 per cent in June 2019.
This spike has been led by PSBs, whose impairment has jumped from 15 per cent in June 2018 to 18.71 per cent in June 2019. The system-wide losses stood at 3.90 per cent in June 2016, and for state-owned banks, it stood at 7.06 per cent. But the losses saw a steady rise to 4.38 per cent and 9.67 per cent, respectively, in June 2017, said the report.
The impairment numbers are cumulative in the sense that a company deemed impaired in the earlier quarter continues to be included as impaired till it comes out of the same. The impairment is based on 90 days past due (dpd).
Meanwhile, the RBI also warned of “rating shopping” by low rated companies for long-term bank loans. Rating shopping refers to how a company or a debt paper manages to get same or better rating from another agency within three months of it getting a poor rating.
The warning comes after the markets watchdog Sebi last Friday penalised Icra, Care and India Ratings Rs 25 lakh each for their "lapses in their duty to investors by not taking timely action" when they rated NCDs of IL&FS which owes close to Rs 1 lakh crore to the system.
The Sebi also found the agencies guilty of excessively relying on assertions of the IL&FS management. A fortnight before IL&FS went belly up in September 2018, rating agencies India Ratings, Icra and Care had given its debt papers AAA/AA+ ratings....