NBFC BAD LOAN TRIPLES IN REAL ESTATE

Posted by Mohit Bharatiya on February 5th, 2020

Mohit Bharatiya | It is not a surprise that the government of India has derived several initiatives to revive the real estate sectors in India. The sector has also gained financial support to help developers revive stalked projects. Apart from this, the banking sectors also experienced its fair share of a drawback as the India bank association and other banking operations are not willing to grants funds and loans to non-banking finance companies as opposed by the government. Many banks are putting their security and prioritizing the banking operations first before any other objective. Although, on the pressing of the government the banks have decided to grant loans to NBFC’S who are authorized by the government.

According to the reports, the non-banking finance sectors are under severe pressure and surveillance as there have been observations on the sector having bad loans than tripled this year. It is also stated that the loans are more in the real estate sectors. The non-banking finance companies are currently undergoing a major crisis as the bad loans are increasing and without banks rendering loans and funding into the sector, there would be a collapse for the sector if not handled properly.

Banks in India are reluctant to lend to the non-banking finance companies because of this unraveling problem. NBFC’s are not paying off the loans already taken, even though the government insists that banks lend out and fund the sector. Banks expect that NBFC’s pay up the existing loans before gaining access to more funds in order to protect the interest of banks in India. Due to the slowdown in real estate and automobiles sectors, there have been probabilities that the non-banking finance sectors bad loan may triple in the coming year if remedial measures are not in place to get rid of the loans. The demand for real estate has been observed to still be in a low-level rate, with the fraud cases of governmental funds towards the housing realty arises. Therefore, the chance that the sector may gain positive momentum is yet to be determined. The estimated bad loan-level was almost thrice at 10 percent in the previous year, excluding the Lease Rental Discounting (LRD) and moratoriums.

There have also been estimates according to CRISIL that the level of the bad loans in the non-banking finance sectors will increase to around 10 percent based on reports. The bad loans in relation to the real estate increased from 1.8 percent to 3.3 percent in approximately six months from 2019. Financial institutions in India are in a major financial crisis has the pressure of their loan accumulates due to developers failing to sell their inventories as a result of a sharp slowdown in the economy. Many sectors are facing the pressure of bad loans.

The second sector that faces loan financial pressure apart from the real estate sector is the NBFCs, that is, the automobile sector. These are mainly in relation to the commercial vehicles, cars and utility vehicles portfolios where demand is dependent upon the economic environment. Banks had stopped financing the real estate sector, which led to the NBFC’s aggressively funding the sector. But, the real estate sector faced severe overvaluation and structural problems that have pushed a severe blow to the NBFC’s finances.

Mohit Bharatiya is the author of this article. Find more information about Mohit Bharatiya.