Latest Property News on 'Banking and Finance'

30% Rise in NPAs- Banks to be Cautious in Extending Loans to Real Estate, Retail

Banks’ non-performing assets have shot up nearly 30% at the end of calendar 2009 from a year ago due to stress in many sectors and farm loan waiver, indicating sharply lower profits for banks and possibility of curbs on exposure to sectors that have contributed to the bad assets. In a reply to the Rajya Sabha, the government said the overall NPAs have increased to Rs 80,023 crore at the end of December 2009 from Rs 61,647crore at the end of December 2008, an increase of over 30%. “Banks will be more cautious towards lending to sectors such as real estate, exports and even retail loans,” says a senior banker with a private bank. A number of private banks have already curtailed their retail lending, specially personal loans.

A recent report by Fitch ratings on ‘banks’ restructuring loan portfolio’ pointed that restructured bank loans worth Rs 30,675 crore may turn bad in 2010-11 and further push up banks’ gross non-performing assets (NPAs) on an average by one percentage point. State-owned banks, however, feel that the rising NPAs will not impact their profitability and that NPAs are minuscule as compared to the total advances. “If you look at our figures, the gross NPAs are at 1.8% of our total advances. Besides, all banks have been making provisions for these loans, which have been reflected in third quarterly results. There will be some caution but it’s not over-exercised,” said CGM Punjab National Bank, RIS Sidhu. The bank reported a flat 1% increase in the net profit to Rs 1011.31 crore for the third quarter of this financial year. Read More »

Foreign funds sneak into property business

Foreign debt, banned in real estate, is finding its way into property firms, as bankers and lawyers help builders cobble together new deals to raise money. Even though foreign loans, better known as external commercial borrowings (ECBs), are not permitted in construction, property firms have spotted a mechanism where the debt can be provided by foreign institutional investors (FIIs) registered with Sebi. No rules are broken and the deals, involving a three-way transaction, come across as normal private placements in the corporate bond market. It begins with a real estate company placing non-convertible debentures (NCDs) with a local entity like a non-banking finance company (NBFC) to borrow.

The next step involves listing the debt security, soon after which an FII steps in. Once the NCD is listed in the stock exchange, the NBFC offloads the paper to a foreign fund. Since FIIs cannot invest in unlisted debt, the NBFC warehouses the NCD till the paper is listed and then recovers the money by selling the debentures to a foreign fund. The two transactions are parts of a back-to-back deal struck among the NCD-issuing firm, the local NBFC and an FII. At least four developers, three from Mumbai and one from Bangalore, have raised over Rs 1,000 crore in the past few months through this route. Read More »

No taxing time for real estate: Govt

The government today said the net impact of the service tax on real estate construction would be only 3.3 per cent, since construction attracts service tax only on 33 per cent of the value. The government had last week clarified through the Budget that transactions such as leasing vacant land and commercial spaces, payment made to developers before the grant of completion certificate and imposing preferred location charges, among others, would come under the service tax net.

Developers said the proposal could push home prices up by 10 per cent in Tier-II and Tier-III towns and 0.5-4 per cent in big cities such as Mumbai and Delhi which have higher land prices. However, a senior finance ministry official here said the net impact of the service tax would be only 3.3 per cent, since there is an abatement of 67 per cent. “There is a false impression being created that prices will go up by 10 per cent but the fact is that 10 per cent service tax is levied only on 33 per cent of the value,” said the official. Read More »

No Hike in Interest Rates Confirms SBI

RBI hiked the cash reserve ratio by 75 basis points but the increase in overall credit was still moving at snail’s pace. Keeping this in mind, India’s largest lender State Bank of India (SBI) announced on Monday that the lending rates would not be changed much and would largely remain stable for the coming 5-6 months.

There are now enough liquidity ratios in the system and the credit offtake is still slow thus the home loan rates are to remain stable for some time. SBI had given teaser home loan rates earlier this year to which the central bank had expressed concern. The authorities feel that once the interest rates go up it would be tough to repay the home loans. ‘Teaser’ rates are referred to as rates when the interest rate of the loan is low for the first few years, which increases later during the term of loan. SBI had offered such loans. Read More »

Positive of Recovery Banks Plan Big Push for Retail Loan Segment

Betting big on economic recovery, public sector banks in India are planning to give a big push to retail loans. While State Bank of India (SBI), the country’s largest lender, claims to have overtaken Housing Development Finance Corp. Ltd, the largest mortgage firm, and ICICI Bank Ltd (in the case of auto loans), other public sector banks want to take the battle to the backyard of private banks, which have traditionally been chasing retail loan customers. “Look at the number of new people coming into the bankable bracket. They are earning big, fresh after college,” said Punjab National Bank chairman and managing director K. R. Kamath. “There is a vast opportunity there.”

R.S. Reddy, chairman and managing director of Andhra Bank, said it is not that public sector banks are doing bad in retail space, but that they are rediscovering the space after the crisis. “Everybody was looking at corporate loans. Yields have (been) squeezed there, but retail loans ensure a good return,” he said. India’s public sector banks, which account for about 70% of the industry, normally depend on corporate clients, but the economic slowdown in the wake of the collapse of US investment bank Lehman Brothers Holdings Inc. has forced them to change their business strategy. After a severe liquidity crunch, they were flush with money, but corporations were not willing to borrow. Read More »

Banks Keep Home Loan Rates Steady despite RBI’s Hike in CRR

The Reserve Bank of India (RBI) hiked the cash reserve ratio (CRR) in the monetary policy review last week. Despite a more-than-expected hike in the CRR, banks have, in general, ruled out any immediate hike in lending rates. According to bankers, there is abundant liquidity in the system and they can absorb the increased cash reserve requirement.

In order to tackle the rising inflation rate, the RBI hiked the CRR (the amount banks have to park with the central bank) by 0.75 percent to 5.75 percent, but left the key rates untouched. The 75 basis points increase in the CRR to 5.75 percent is expected to draw out at least Rs 36,000 crores from the system . This move is mainly to check the food price inflation from spreading to other sectors. The RBI said the CRR will be increased by 50 basis points from February 13, and a further 25 basis points to 5.75 percent from February 27. The bank rate, used by banks to price long-term loans, remains unchanged at six percent. Read More »

DB Realty Issues IPO at Rs 468 per Share

Real estate developer DB Realty has fixed the issue price of its initial pubic offer (IPO) at Rs 468 per share, the lower end of its price band. Mumbai-based realty firm’s Rs 1,500 crore initial pubic offer (IPO) that closed on February 2, was subscribed nearly three times. The issue would constitute 13.18 per cent of the fully diluted post-issue capital of the company, DB Realty said in a public announcement on Thursday.

DB Realty entered into the capital market with an issue size of 3.20 crore equity shares in a price band of Rs 468-486 a share with face value of Rs 10. The issue, which opened on January 29, was subscribed 4.4 times from the qualified institutional buyers (QIBs) portion. The proceeds of the IPO would be utilised towards new projects, pre-payment of loan and general corporate purposes. Read More »

Omaxe Ltd. Q3 cons net profit at Rs284.6mn

Omaxe Ltd., a premier real estate development company in India today reported Consolidated Net Sales of Rs. 280.20 crore for the quarter ended December 31st 2009 as compared to Rs. 1.8bn for the quarter ended December 31st 2008, registering a growth of 55%. Consolidated Net Profit for the quarter stood at Rs. 284.6mn, increased by 383% as compared to Rs. 58.8mn posted in the quarter ended December 31st 2008. Earnings per share (EPS) for the quarter stood at Rs. 1.64 as compared to Rs. 0.34 in the quarter ended December 31st 2008.

The company registered growth of 25% in its Consolidated Net Sales of Rs. 2.80bn for the quarter ended December 31st 2009 as compared to Rs. 2.23bn for the quarter ended September 30th 2009. Consolidated Net Profit increased by 22% as compared to Rs. 23.31 crore posted in the quarter ended September 30th 2009. Earnings per share (EPS) for the quarter stood at Rs. 1.64 as compared to Rs.1.34 in the quarter ended September 30th 2009. Read More »

Property IPO wave risks investor indigestion

Investors are more likely to choke on a glut of India property IPOs set to hit the market this year than gobble them up. Even though Godrej made a strong debut this month in the first Indian property listing in two years, IPOs of other developers could meet more restrained investor buying as they compete with a slew of large public sector offerings.

At least 16 real estate firms have lined up plans for initial public offers to raise about $6 billion, buoyed by an 81 percent rise in the Mumbai stock index last year and as property buyers return. “If all the IPOs get bunched up, we have a problem. Everybody may not see the light of day,” said Jayesh Shroff, fund manager at SBI MF, which manages about $8 billion worth of funds. Read More »

Bank’s Retail Lending Declines

The tightening of credit norms for unsecured loans is showing. According to data, flow of personal loans declined 0.1 per cent in the year up to October 2009, as against a 15 per cent rise a year ago. The Reserve bank of India’s (RBI’s) definition of personal loans includes loans for housing, credit card outstandings, consumer durables finance by banks, education loans and advances against fixed deposits. Over the last five years, this segment, termed as retail lending by banks, was the main growth driver for most entities.

While lower unsecured lending was part of the strategy adopted by banks following the credit crisis, the demand for housing loans dropped over the last 18 months as buyers deferred purchases due to high real estate prices and uncertainty over income. While RBI India has not disclosed the latest numbers for credit cards and consumer durable loans, Deputy Governor Shyamala Gopinath said the contraction in these segments was continued. When RBI had last released the disaggregated data, in the year up to August 2009, credit card outstandings were lower by 14.3 per cent. Similarly, consumer durables loans had declined 16.7 per cent. During the year up to August 2009, the personal loan segment had seen a 2.3 per cent rise. Read More »