Tag: exposure

Exposure of banks, financial institutions to real estate at $100 billion; 67% loans safe, says Anarock

Banking & Finance

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Banks and other financial institutions have an exposure of $100 billion to real estate sector, of which 67 per cent are safe while the remaining loans are under pressure or severely stressed, according to real estate consultant Anarock.

“At least 67 per cent (or approximately $67 billion) of the total loan advances ($100 billion) to Indian real estate by banks, NBFCs and HFCs is currently completely stress-free,” Anarock Capital, a subsidiary of Anarock, said in a statement on Monday.

Another 15 per cent (about $15 billion) is under some pressure but has scope for resolution with certainty on at least the principal amount.

“$18 billion (or 18 per cent) 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,” the statement said.

Contribution of NBFCs and HFCs

Anarock Capital said the overall contribution of non-banking financial companies (NBFCs) and housing finance companies (HFCs), including trusteeships, towards the total lending to Indian real estate is at 63 per cent.

Individually, banks have a share of 37 per cent, followed by HFCs at around 34 per cent, and NBFCs 16 per cent. Around 13 per cent loans have been given under trusteeships.

According to Anarock Capital, banks and HFCs are much better placed with 75 per cent and 66 per cent of their lending book in a comfortable position.

“Not surprisingly, nearly 46 per cent of the total NBFC lending is on the watchlist,” the statement said.

About 75 per cent 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 $73 billion is given to Grade A builders,” the statement said.

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Covid-hit loan restructuring may be onerous for banks, borrowers, BFSI News, ET BFSI

Banking & Finance

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The government has allowed a restructuring scheme for small borrowers, but it comes with costs for both borrowers and lenders.

The lenders will have to set aside a provision of 10 per cent of the residual debt of the borrower, while the borrowers will be tagged as restructured loans by credit bureaus, which will crimp their ability to avail further loans. The provisioning will impact the capital position of banks, while the borrowers get tagged as restructured loans for something which may not be their fault.

Decisions to make

In the second Covid wave, lenders have to decide which borrowers are eligible for the recast and choose among those who were classified as standard accounts at the end of FY21.

Last year, during the first Covid wave, RBI has allowed a moratorium on loans which is not available this time.

Banks stare at a huge number of decisions to make with banks’ exposure to MSMEs at Rs 5.19 lakh crore, exposure to non-banking financial companies at Rs 9.45 lakh crore, many of which on-lend to MSMEs. Microfinance institutions, which depend on bank funding, have given out Rs 2.30 lakh crore. Banks are also not sure till when the second wave and in turn the stress in the economy will persist.

Also, rural India, which escaped largely unscathed last time, is likely to face stress this time.

Restructuring 2.0

Earlier this month, Reserve Bank announced a slew of measures including loan restructuring for individual and small businesses hit hard by the fresh Covid wave.

Borrowers that are individuals and micro, small and medium enterprises (MSMEs) having aggregate exposure of up to Rs 25 crore would be considered for the new scheme.

This would be for those who have not availed restructuring under any of the earlier frameworks, including the Resolution Framework 1.0 of RBI dated August 6, 2020, and who are classified as standard as on March 31, 2021, shall be eligible for the Resolution Framework 2.0, he said.

Under the proposed framework, the restructuring of loans may be invoked up to September 30, and shall have to be implemented within 90 days after the invocation, he added.



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