Indian Property slump leaves beleaguered banks exposed
India might have thought the worst of a bad loan 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 (Dh36.7 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 non-banking finance companies (NBFCs), commonly known as shadow lenders.