- There is something alarming from the Asset side of the loan availed against property (termed as LAP). This inturn has created worries due to the thin margin on the securities available.
- Moreso, the widespread industry level assessment reveals that over 60% of LAP borrowers have applied for the six month moratorium support, which is a relief measure the Government/RBI announced to ease stress from the severe pandemic hit economy.
- Lenders now are fearing that if debtors will start repaying once the moratorium period ends in August, would come out with the actual position.
- Lenders who used LAP aggressively to grow their books might now be in problem. Many a time these loans were given out without asking their purpose of objective. Some portion of the LAP book is therefore expected to cause concern.
- LAP is a secured loan against an immoveable asset, either a property or land which is mortgaged to the lender. The data of Credit Bureau Crif High Mark shows banks, Non Banking Financial Companies and other financial intermediaries have LAP outstanding worth over Rs. 6.02 lakh crore as of March end, which is up from Rs. 4.8 lakh crore an year ago. The combined book currently sees a delinquency rate of 3.6% in 31-90 days delayed payments bucket. Repayment delayed past 90 days from the date due show over 5% delinquency rate.
- The first category of borrowers viz the developers is most likely to default on repayment, as per Lenders belief.
- After the IL&FS crisis of end 2018 manynders started asking for 1.2 to 1.5 times the security cover for all LAP loans offered moreso to real estate developers. To bulk up their loan books in quickly several lenders also extended loans upto 80% of the mortgage value.
- Real estate consultants also add that around 20-25% fall in the asset prices is seen over the past six months. Residential units sale has dropped nearly 30% in the first quarter of current fiscal and site walk ins have come down significantly.
- Commercial space developers are relatively better placed as Vacancy Levels are hovering at 8%. But rental yields of commercial property owners have dived on account of renegotiations of lease agreement by tenants.
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