Tackling the Un-Real Estate Loans
Apr 07, 2017 Home Loan
In the recent report by India Ratings (Ind-Ra) showed the defaults for the Loan against the Property (LAP) are on the rise in 2016. As compared to last five years, they are 5 percent more and are already worrying the banks and the non- banking financial corporate (NBFCs). They already feel the pressure of debt from the corporate sectors.
Most of the defaulters are the ones that take the loan of more than Rs 50 lacs. People opting for loans less than Rs 20 lacs are more behaved. Also, most of the default cases are from the metro cities as the property bubble is deflating. The LAP market was driven by the cost of the property. Buyers took the loans based on the soaring prices which are unreal.
Even the lenders played along with it. Instead of giving out loans against the stable residential properties they even gave it out for commercial properties and freehold lands. If the prices of the property soar up then it will credit across all the retail, property and commercial corner. But if not then it will freeze all the credit and growth.
If we want to avoid facing the same fate as US subprime mortgage crisis in India, government and Reserve bank of India should step in quickly.
Regulators should step in to normalize the situation. LAPs should have even more stricter norms. Recovering the credit might be tricky; hence the assets lying under LAP should be added to the recovery pool and should be auctioned off to recover the loss. And government should not go onto the bailout mode for this.
Most of the defaulters are the ones that take the loan of more than Rs 50 lacs. People opting for loans less than Rs 20 lacs are more behaved. Also, most of the default cases are from the metro cities as the property bubble is deflating. The LAP market was driven by the cost of the property. Buyers took the loans based on the soaring prices which are unreal.
Even the lenders played along with it. Instead of giving out loans against the stable residential properties they even gave it out for commercial properties and freehold lands. If the prices of the property soar up then it will credit across all the retail, property and commercial corner. But if not then it will freeze all the credit and growth.
If we want to avoid facing the same fate as US subprime mortgage crisis in India, government and Reserve bank of India should step in quickly.
Regulators should step in to normalize the situation. LAPs should have even more stricter norms. Recovering the credit might be tricky; hence the assets lying under LAP should be added to the recovery pool and should be auctioned off to recover the loss. And government should not go onto the bailout mode for this.
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