Financial Stability Report: RBI Says Financial Sector Risk From Real Estate Loans On The Rise

The rate of default among 310 real estate-related firms in India rose in the ongoing financial year, signalling increasing stress in the struggling sector.

Almost all lenders to the real estate sector, including banks, housing finance companies and non-banking finance companies, saw a dip in their quality of assets, when considering the 90-day default cycle, the Reserve Bank of India said in its latest edition of the financial stability report.

Default rate among public sector banks and NBFCs increased even after 180 days, while private banks and housing finance companies showed an improvement, the report said.

“The analysis of 310 real estate related obligors gives evidence of increased stress although the aggregate exposure to the sample firms continued to increase, implying availability of credit,” the RBI said. “However, the aggregate numbers for HFCs/NBFCs/private banks, while increasing, are relatively small in absolute amounts. Public sector banks’ exposure, particularly with regard to impairment is fairly large.”

The report noted that aggregate exposure to these real estate companies has doubled to Rs 2 lakh crore since 2016 and was rising even as recently as June 2019.

• The flow of funds to the sector has continued notwithstanding a general slowdown in credit growth documented earlier.
• Since September 2018 when the IL&FS induced risk aversion was noted, all categories of financial intermediaries have increased their exposures to these real estate companies, the sharpest being that of HFCs.
• HFC’s exposure has doubled from 12.17 percent to 23.81 percent.