NEW DELHI: Alarmed by the deepening financial stress plaguing the real estate sector, the Department of Financial Services and Department of Economic Affairs have flagged concern over the debt bomb the distressed industry is sitting on. Officials fear a debt default of Rs 1 lakh crore in the coming quarter, which may cripple the financial sector too.
Officials said the finance minister will be discussing the issue next week. “Fear of rise in NPA from the realty sector is a matter of concern. An internal assessment hints that Rs 1 lakh crore worth of loans which would be up for repayment by the end of this quarter could turn bad,” they said.
“We have already flagged the situation and the government will be discussing the measures this week in consultation with the RBI,” a senior official from the DFS told TNIE.
So far, 560,000 homes worth of Rs 4.5 lakh crore are stuck or delayed across the top seven Indian cities mainly due to dearth of funds, according to Anarock Property Consultants. The developers have taken loans at high rates to repay and this has added to their liquidity woes. The problem got accentuated by a liquidity squeeze in financial markets after several non-banking financial companies defaulted on payments.
According to realty consultant JLL, total disbursals by NBFCs and HFCs to developers declined from Rs 52,000 crore in 2017-18 to an estimated Rs 27,000 crore in 2018-19.
“Consider a situation where a developer with costs of building an apartment at Rs 30 lakh that has a price point of Rs 50 lakh. If there are no buyers, the builder takes a loan at, say, 23 per cent interest to refinance his current loans. Even that route has dried up,” a leading banker told this publication.
In June, credit-rating agency ICRA downgraded Piramal Capital and Housing Finance as well as Edelweiss Capital on fears of defaults. Out of Rs 56,000-crore loan book, Rs 40,000 crore has been lent to realty.
However, this fear is not new. In its latest Financial Stability Report, the RBI has warned any failure among large NBFCs or housing finance firms could cause losses comparable to a major bank collapse.