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How NBFC crisis, weak recovery hit loan against property market in FY19

FE Online
loan against property

The ongoing liquidity crisis in the NBFC sector has hit the loan against property (LAP) market in fiscal 2019, a report said. Fall in recoveries due to weak property markets in metro cities and rise in delinquencies has led to weakening of the LAP segment for financiers, the report by rating agency India Ratings said. Delinquency indices for the LAP transactions rated by the agency have been on the rise and the 90-day overdue loans rising to 1.77 per cent in January from 1.05 per cent in the year-ago period, it added. The debacle at the IL&FS in September 2018 triggered a crisis in the NBFC segment which caused a negative impact on the economy. The key reason behind the default was being cost overrun due to delays in long-term infrastructure projects that were funded by the NBFCs. It finally led to defaulted repayments of even commercial papers by banks, insurance companies and mutual funds.

Even as property segment remains sluggish, commercial vehicle (CV) loans are showing signs of improvement, the report noted. The delinquency index for rated commercial vehicle loans declined from 8.19 per cent from the year ago period to 7.53 per cent, the report said. Moderate rise in freight rates and changes in government rules including revised axle load norms has helped in improvement of performance of commercial vehicle loans.

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While states such as Gujarat and Andhra Pradesh performed better, Uttar Pradesh, Bihar and Jharkhand showed a relatively high delinquency levels in the commercial vehicle loan segment, the report added. In microfinance segment, an improvement was seen on account of willingness to enter newer geographies and updates in underwriting standards, the report also said.