Loan against property market affected by liquidity crunch in FY19
A liquidity crunch(when cash resources are in short supply and demand is high) in NBFCs, along with weak sentiment in the property market have weakened the LAP market in the Financial Year 2019, reported by India Ratings and Research. Loan against property is considered to be a secured loan in which one can mortgage properties to a lender and borrow against it.
According to India Ratings, the issues faced by a non-banking financial corporation such as poor sentiments in the property market and the liquidity crisis weakened the performance of LAP in FY19. The overdue on payment index for India Ratings-rated LAP transactions have been on the rise.
According to the report, there is a rise in the overdue on payments among loan against payments, with the more than 90 days repayment overdue increasing to 1.77 % in January 2019 from 1.05% in January 2018. They also observed high delinquencies among high loan-to-value and high-yield buckets.
A series of defaults led by Infrastructure Leasing and Financial Services Ltd last year, mutual funds with exposure to debt papers of the company had to write off a chunk of their holdings and the ensuing defaults by some other non-banking financial companies (NBFCs), has led to the current liquidity crisis.
According to the rating agency, the tractor and microfinance institution (MFI) loan continued to improve in FY19. The overdue on payments index for commercial vehicle (CV) and construction equipment (CE) loans remained stable.
The report also added that overdue on payments for tractor loans transaction improved since Financial year 18 &19. Also, the course of 2017 and 2018 loan vintages performed better than earlier vintages. The overdue on payments in tractor financing among originators(banks) fell 33% year-on-year in December 2018.