US$20 B BANK LOANS AT RISK
India’s lenders take control of land parcels and unfinished projects to recover dues
INDIAN lenders struggling to recoup loans worth about US$20 billion (RM81.2 billion) to troubled property developers have to contend with another challenge: A lacklustre recovery from the worst house sales slump this decade.
To recover the dues, banks are taking control of land parcels and unfinished projects that can be sold along with loans.
This came at a time when home sales volumes had declined about 40 per cent over four years and prices had dropped as much as 20 per cent on average, said S. Sriniwasan, managing director of Kotak Investment Advisors, which oversees the alternate assets business of parent Kotak Mahindra Bank Ltd.
“Weaker hands are going out of business in realty and lenders are working on recovering US$20 billion worth of stressed loans to developers ,” said Sriniwasan, who had been bidding to buy properties that banks are putting on the block.
‘‘All those land banks, which developers used to tout as a valuation booster, are turning into bank lands now”, and creditors will have to take haircuts while selling the collateral.
Developers, including Jaypee Infratech Ltd and Unitech Ltd, have been taken before India’s courts by irate house owners and creditors as apartment sales slumped in the once red-hot South Asian market following the triple whammy of a surprise cash ban, tax reforms and a consumerprotection law for the sector.
Last year, house sales plunged to a seven-year low and prices in some of India’s biggest cities tumbled.
There was an oversupply of land parcels in the market, weighing down on pricing, as banks pushed to recover loans, according to Indiabulls Asset Reconstruction Company Ltd.
The Mumbai-based bad loan buyer had purchased stressed realty assets worth four billion rupees (RM235.48 million) and was examining another three buyouts, said Kiran Shingwekar, chief executive officer of IARCL.
“Banks have limited head room and expertise in bringing a stressed realty project back on track and hence it makes sense for them to sell down the loans and assets to firms specialising in the segment,” he said.