Moody’s says Altico’s default credit negative for banks with exposure to realty1 min read . Updated: 19 Sep 2019, 12:06 PM IST
- Yes Bank and IndusInd Bank have the largest direct exposure to commercial real estate
- Other banks like ICICI Bank and Axis Bank also have significant exposure to the sector
Mumbai: Rating agency Moody's on Thursday said real estate financier Altico Capital India Ltd's default is credit negative for banks with significant exposure to real estate sector. The default signals increasing tight liquidity among property developers, said the agency.
Moody's also said banks such as Yes bank and Indusind Bank which have the largest direct exposure to commercial real estate would be susceptible to asset quality difficulties if the real estate sector continues to slow. Other banks like ICICI Bank and Axis bank also have significant exposure to the sector.
Banks have indirect exposure to real estate sector through their lending to non-banking finance companies (NBFCs) and housing finance companies (HFCs), which also lend to real estate developers. While the overall exposure of NBFCs and HFCs to the real estate sector is only about 6% of their total assets, some NBFCs and HFCs are more exposed than others, making them vulnerable to a slowdown in the sector.
In response to the tightening liquidity in the real estate sector, the Indian government on 13 September announced that it would create an investment fund to provide soft loans to residential real estate developers to complete partially constructed affordable housing projects.
The government will contribute ₹10,000 crore to the fund and expects a similar-size contribution from entities including the Life Insurance Corporation of India, Indian banks and development institutions.
According to Moody's, the creation of the investment fund is credit positive for the real estate sector, but its timeline and modalities are not yet known, and is unclear if it will help address the sector's immediate liquidity constraints. In addition, it will not address the broader solvency constraints of real estate developers given its narrow remit of targeting only certain residential real estate projects.