/>

Liquidity stress in realty a credit negative for banks, says Moody’s

‘Altico’s default signals cash crunch among developers’

Updated - September 19, 2019 10:43 pm IST - MUMBAI

HYDERABAD (AP) -20-02-2014--BL/ REPORT:VRK :The real estate sector in Telangana is battered by the recent uncertainities . Realty under construction in Hyderabad's Manikonda area .  -PHOTO: P.V.SIVAKUMAR / 9440422761

HYDERABAD (AP) -20-02-2014--BL/ REPORT:VRK :The real estate sector in Telangana is battered by the recent uncertainities . Realty under construction in Hyderabad's Manikonda area . -PHOTO: P.V.SIVAKUMAR / 9440422761

Credit rating agency Moody’s has said that the increasing liquidity stress among real estate developers would indirectly hit Indian banks and is thus credit negative for the domestic lenders.

“On September 12, real estate-focussed non-banking financial company (NBFC) Altico Capital India Ltd., defaulted on a scheduled interest payment on a loan because of insufficient liquidity. Although Indian banks’ exposure to Altico Capital is fairly modest and accounts for less than 0.1% of total banking system loans, the default signals increasingly tight liquidity among property developers, a credit negative for Indian banks, given their significant exposure to the real estate sector,” Moody’s said.

“We believe Altico Capital is facing liquidity constraints because of a deterioration in the credit quality of its loans to real estate developers, which are facing difficulty in repaying and refinancing their maturing obligations as a result of slowing property sales,” it said.

Moody’s said Altico Capital’s default came after Dewan Housing Finance Ltd. defaulted on its loan obligations in July because of insufficient liquidity, raising questions about its solvency.

“Among the banks we rate, Yes Bank, IndusInd Bank have the largest direct exposure to the commercial real estate (CRE) sector, and would be susceptible to asset quality difficulties if the real estate sector continues to slow,” it said.

Other rated private sector banks such as ICICI Bank and Axis Bank are also significantly exposed to the sector, it said.

Indirect exposure

Indian banks also have indirect exposure to the real estate sector through their lending to NBFCs and HFCs, which also lend to real estate developers. Based on data from the Reserve Bank of India, the overall exposure of NBFCs and HFCs to the real estate sector was only about 6.0% of their total assets as of March 31, 2019.

However, some NBFCs and HFCs are more exposed than others, making them vulnerable to a slowdown in the sector.

0 / 0
Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in

Comments

Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.