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Loan against property market affected by liquidity crunch in FY19: India Ratings
Live Mint  |  May 14, 2019

Shayan Ghosh Mumbai

·        More than 90 days repayment overdue rose to 1.77% in January 2019 from 1.05% a year ago

·        Tractor and microfinance institution (MFI) loans rated by India Ratings continued to improve in FY19

 

A liquidity crunch in non-banking financial companies (NBFCs), coupled with poor sentiment in the property market have weakened the loan against property (LAP) market in FY19, rating agency India Ratings and Research said in a report. LAP is a secured loan in which one can mortgage properties to a lender and borrow against it.

 

“Poor sentiment in the property market and the liquidity crunch faced by non-banking financial corporations weakened the performance of LAP in FY19. The delinquency indices for India Ratings-rated LAP transactions have been on the rise, with the early buckets showing an uptrend," said India Ratings.

 

According to the report, delinquencies among LAP transactions continued to rise, with the more than 90 days repayment overdue increasing to 1.77% in January 2019 from 1.05% in January 2018. “Also, high delinquencies have been observed among high loan-to-value and high-yield buckets."

 

Following a series of defaults by Infrastructure Leasing and Financial Services Ltd (IL&FS) last year, mutual funds with exposure to debt papers of the company had to write off a chunk of their holdings. This, and the ensuing defaults by some other non-banking financial companies (NBFCs), has led to the current liquidity crisis.

 

The rating agency added that tractor and microfinance institution (MFI) loans rated by India Ratings continued to improve in FY19. The delinquency indices for commercial vehicle (CV) and construction equipment (CE) loans remained stable.

 

“All delinquency indicators for tractor loan transactions improved over FY18 and FY19. Also, the trajectory of 2017 and 2018 loan vintages performed better than earlier vintages. Delinquencies in tractor financing among originators fell 33% year-on-year (y-o-y) in December 2018," the report added.