Indian shadow banks now face rising risks that weaker developers may struggle to repay those borrowings, as housing sales have failed to keep pace with debt expansion.
Business
Standard : The next flash point in India’s credit markets
could be real-estate debt.
That’s the view of ICICI Prudential Life Insurance Co., a major corporate bond buyer and one of India’s top life insurers. The firm avoided investing in debt of stressed companies before credit market strains spread last year.
That
crisis was triggered by shock defaults by major infrastructure
financier IL&FS
Group, and its fallout pushed up financing costs for a range of
borrowers including wealthy property tycoons struggling to roll over
debt. The country hardly needs more stresses now just as credit
markets regain some normalcy after policy makers took steps to inject
more liquidity into the financial system.
“While
most of the credit market is healthy, one needs to be cautious on
NBFCs having large exposure to the real-estate sector,” said Chief
Investment Officer Manish Kumar, who oversees Rs 1.1 trillion ($15.8
billion) at ICICI Prudential Life. Pressure may rise at non-bank
firms, raising the need for lenders to liquidate assets or for
stronger developers to buy up projects, he said.
Indian
shadow banks lent heavily to the property industry in recent years,
helping to fuel a construction boom.
They
now face rising risks that weaker developers may struggle to repay
those borrowings, as housing sales have failed to keep pace with debt
expansion. Teetering economic activity also isn’t helping.
Earlier
this year, troubles for mortgage lender Dewan Housing Finance Corp.
were among factors that pushed up financing costs.
An
analysis of about 11,000 home builders by research firm Liases Foras
in February showed that developers on average have to repay twice as
much in debt each year as the income they generate that can be used
to service it. Property prices in India’s biggest cities have been
flagging -- home values in Mumbai sank 11 percent last year.
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