Indian property slump leaves beleaguered banks exposed

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. (Shutterstock)
Updated 14 October 2019

Indian property slump leaves beleaguered banks exposed

  • While the Indian banking system could be hit by billions of dollars of additional soured debt, the cash crunch in the housing market has levied a toll in human misery

MUMBAI: India might have thought the worst of a bad loans 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 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 nonbanking finance companies (NBFCs), commonly known as shadow lenders.

Potential implosions of these NBFCs could expose banks, according to 12 banking and real estate sources.

A senior banking industry official, declining to be named due to the sensitivity of the matter, said banks would be affected by the property cash crunch in three ways: Their lending to NBFCs, their own direct exposure to developers and also individuals who do not repay mortgages.

“It will be a triple-whammy,” he said. While the Indian banking system could be hit by billions of dollars of additional soured debt, the cash crunch in the housing market has levied a toll in human misery.

Retired Squadron Leader Krishan Mitroo has paid 90 percent of the cost of his house in Noida, northern India, to developer Jaypee, and the property was supposed to be handed over five years ago. However, Jaypee was forced to delay the project and went into insolvency in 2017.

“The project has been stuck and there is no progress at all. Even the bankruptcy court has not been able to resolve the issue so far, it is just hanging in thin air,” Mitroo said. He did not say how much money he had paid, but properties in that project range from about $56,000 to $140,000.

Several such projects are stuck across the country and buyers are waiting for new developers to take interest and complete them with the hope that their hard-earned money, which has been stuck for years, won’t be lost forever.


Oil recoups losses as OPEC, US Fed see robust economy

Updated 14 November 2019

Oil recoups losses as OPEC, US Fed see robust economy

  • US-China trade deal will help remove ‘dark cloud’ over oil, says Barkindo

LONDON: Oil prices reversed early losses on Wednesday after the Organization of the Petroleum Exporting Countries (OPEC) said it saw no signs of global recession and rival US shale oil production could grow by much less than expected in 2020.

Also supporting prices were comments by US Federal Reserve Chair Jerome Powell, who said the US economy would see a “sustained expansion” with the full impact of recent interest rate cuts still to be felt.

Brent crude futures stood roughly flat at around $62 per barrel by 1450 GMT, having fallen by over 1 percent earlier in the day. US West Texas Intermediate crude was at $56 per barrel, up 20 cents or 0.4 percent.

“The baseline outlook remains favorable,” Powell said.

OPEC Secretary-General Mohammad Barkindo said global economic fundamentals remained strong and that he was still confident that the US and China would reach a trade deal.

“It will almost remove that dark cloud that had engulfed the global economy,” Barkindo said, adding it was too early to discuss the output policy of OPEC’s December meeting.

HIGHLIGHT

  • US oil production likely to grow by just 0.3-0.4 million barrels per day next year — or less than half of previous expectations.
  • The prospects for ‘US crude exports had turned bleak after shipping rates jumped last month.’

He also said some US companies were now saying US oil production would grow by just 0.3-0.4 million barrels per day next year — or less than half of previous expectations — reducing the risk of an oil glut next year.

US President Donald Trump said on Tuesday Washington and Beijing were close to finalizing a trade deal, but he fell short of providing a date or venue for the signing ceremony.

“The expectations of an inventory build in the US and uncertainty over the OPEC+ strategy on output cuts and US/China trade deal are weighing on oil prices,” said analysts at ING, including the head of commodity strategy Warren Patterson.

In the US, crude oil inventories were forecast to have risen for a third straight week last week, while refined products inventories likely declined, a preliminary Reuters poll showed on Tuesday.

ANZ analysts said the prospects for US crude exports had turned bleak after shipping rates jumped last month.