Indian property slump leaves beleaguered banks exposed

A slump in the residential property market is leaving many builders struggling to repay loans to shadow lenders — housing finance firms outside the regular banking sector that account for over half of the loans to developers. (Shutterstock)
Updated 14 October 2019

Indian property slump leaves beleaguered banks exposed

  • While the Indian banking system could be hit by billions of dollars of additional soured debt, the cash crunch in the housing market has levied a toll in human misery

MUMBAI: India might have thought the worst of a bad loans crisis was past, but a severe cash crunch in the real estate industry could augur fresh strife for its banks. A slump in the residential property market is leaving many builders struggling to repay loans to shadow lenders — housing finance firms outside the regular banking sector that account for over half of the loans to developers.

With about $10 billion of development loans coming up for repayment in the first half of 2020, according to Fitch Rating’s Indian division, the fallout could spread to mainstream banks that have lent money to the shadow lenders or invested in their bonds.

Indian financial authorities, including the central bank and government, have said this year that the banking sector’s bad loans — totaling more than $150 billion — are on the decline for the first time in four years after ballooning during a debt crisis. But the number of property developers falling into bankruptcy has doubled during the past nine months, piling pressure on nonbanking finance companies (NBFCs), commonly known as shadow lenders.

Potential implosions of these NBFCs could expose banks, according to 12 banking and real estate sources.

A senior banking industry official, declining to be named due to the sensitivity of the matter, said banks would be affected by the property cash crunch in three ways: Their lending to NBFCs, their own direct exposure to developers and also individuals who do not repay mortgages.

“It will be a triple-whammy,” he said. While the Indian banking system could be hit by billions of dollars of additional soured debt, the cash crunch in the housing market has levied a toll in human misery.

Retired Squadron Leader Krishan Mitroo has paid 90 percent of the cost of his house in Noida, northern India, to developer Jaypee, and the property was supposed to be handed over five years ago. However, Jaypee was forced to delay the project and went into insolvency in 2017.

“The project has been stuck and there is no progress at all. Even the bankruptcy court has not been able to resolve the issue so far, it is just hanging in thin air,” Mitroo said. He did not say how much money he had paid, but properties in that project range from about $56,000 to $140,000.

Several such projects are stuck across the country and buyers are waiting for new developers to take interest and complete them with the hope that their hard-earned money, which has been stuck for years, won’t be lost forever.


Lufthansa to freeze hiring, cut costs over coronavirus

Updated 26 February 2020

Lufthansa to freeze hiring, cut costs over coronavirus

  • ‘All new hires ... will be reassessed, suspended or deferred’
  • Lufthansa has also slashed connections with Hong Kong in the face of reduced demand

FRANKFURT AM MAIN: German airline Lufthansa said Wednesday it would freeze new hires and use unpaid leave and additional short-time work to cut costs to help cushion the economic impact of the novel coronavirus.
“To counteract the economic impact of the coronavirus of the early stage,” the group, which also owns carriers Austrian and Swiss, said in a statement that “all new hires ... will be reassessed, suspended or deferred.”
Employees would be offered unpaid leave and more part-time work and the group would also seek to cut administrative costs, it said.
“It is not yet possible to estimate the expected impact ... on earnings,” the group said, adding that it would provide more details at its annual results press conference on March 19.
The Frankfurt-based group said 13 of its aircraft were grounded, after it canceled all flights to and from mainland China by its flagship airline, as well as Austrian and Swiss until March 28.
Lufthansa has also slashed connections with Hong Kong in the face of reduced demand “and additional frequency adjustments to and from Frankfurt, Munich and Zurich are planned,” it said.