Repayment concern looms in loan against property market, says ICRA

Asset quality for loans against property or LAP is likely to deteriorate in FY2018 as small enterprises are facing stress in business following implementation of goods and service tax, rating company ICRA said Tuesday.

Loan disbursement against property is also slowing with lenders turning cautious amid correction in property prices.

ICRA expects delinquencies to rise by 50–100 basis points by March 2018 from current levels.

Disbursements dipped by 4% year-on-year in FY2017 after growing by 36% and 43% in the preceding two fiscals although lending rates have come down to around 12% in FY2017 from around 14% in FY2013.

ICRA carried out the analysis on the LAP book of 10 housing finance companies, four non-bank lenders and a small finance bank comprising a total book size of around Rs 85,000 crore, reflecting less than half of the non-bank lending of Rs 2 lakh crore. Banks were not part of this study.

"The findings of the study is a reflection of the broader trend," said Vibhor Mittal, head- structured finance at ICRA.

He said that delinquencies have been inching up but remain low compared to other retail loan segments while prepayment rates have fallen significantly from peak levels of 34% per annum to around 13% a year in Q4 FY2017.

Lending spreads have shrunk by 175–200 bps from peak levels due to steep competition and general lowering trend of interest rates.

Lenders have increased their presence in tier 2 locations but the top three states -- Maharashtra, Delhi and Gujarat -- still account for around 45% of the overall disbursements and the top 10 cities account for around 57% of overall disbursement.