Rating agency, India Ratings and Research, has warned that signs of early stress are clearly visible in the loan against property (LAP) business, indicated by a sharp rise in 90 days past due (dpd) delinquencies, for some of the large players. “In the next four quarters, LAP delinquencies may rise to over 5% from 3.5% in June and 3% in FY16,” the rating agency’s director and co-head (financial institutions) Prakash Agarwal, said.
He said a combination of stagnant property prices, especially in metros and large cities, which are the primary markets for medium and large-ticket LAP and a squeeze on refinancing, due to risk aversion building up in some financiers, are bringing the stress to the fore. Delinquencies may even rise to 5% on a static basis for a few non-banking financial institutions (NBFCs), about 3 times of those in the financial year 2013-14, India Ratings said in a report.
See also: Loan against property: What you need to know
The report analysed the data of 5-6 NBFCs and 4-5 housing finance companies, which the agency rates. The total size of the LAP market in the country is of around Rs 2.5 lakh crore. The report said the LAP portfolio generated in the last five years, indicates that all loans, irrespective of their year of origination, are experiencing the highest level of delinquencies in 2016. It said the LAP market is entering into a delicate phase, where, although the yields are shrinking, credit costs have started to build up.
The report said that small-ticket LAP portfolio, has shown a better performance than large ticket loans, though the portfolio is less seasoned. Newer geographies are facilitating volume growth and due to limited competitive intensity, are allowing lenders to price in the risk. It said recent applicability of Sarfesi Act to NBFCs and on a loan amount higher than Rs 1 crore may reduce slippages and improve recovery.
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