A bank's race against crisis has served a warning to Indian banking

International News
India’s fragile financial system is swinging between despair and hope. Two separate incidents — both featuring the lender YES Bank Ltd — recently underscored the drag of past underwriting follies as well as the lift from a digital reset. It will take time, but good things will come to Indian banking as a result of the present crisis.
Start with the sudden default by financier Altico Capital India Ltd. on a 199.7-million-rupee ($2.8-million) interest payment to Abu Dhabi-based Mashreqbank PSC. Clearwater Capital Partners-backed Altico, which borrows money from banks and mutual funds to make loans to property developers, called the situation a “liquidity crisis.” And that made YES Bank investors gloomy.
Based on January data, the midsize Indian bank had a 4.5-billion-rupee exposure to Altico, the third-highest after Mashreq and HDFC Bank Ltd.
While HDFC Bank, the country’s most valuable lender, has the capital — and current profit — to take the occasional credit hit, YES’s capital cushion is already frayed by dodgy loans to beleaguered shadow banks and troubled tycoons. Both these borrower groups have found it hard to refinance debt since the collapse last year of IL&FS Group, a large Indian infrastructure financier and operator. Altico’s unraveling shows that an end to credit woes is not yet in sight.

 At more than $200 billion, India’s world-beating pile of bad loans is bigger than Italy’s. State-run Indian banks are carrying the bulk of the burden, but at least they’re getting dollops of taxpayers’ money and being merged into fewer banking groups. A private-sector lender like YES doesn’t have a formal public backstop. If it can’t fend for itself, the central bank could step in and force an arranged match with a better-run bank. The terms won’t be favorable to Yes shareholders...Read More

More defaults on cards? Realty cash crunch threatens stressed shadow banks

Economy & Policy:

India’s property developers are finding it hard to borrow money, raising the prospect of a wave of debt defaults from the sector hitting shadow lenders that are trying to survive a funding crunch of their own..

Developers have to repay about Rs 1.29 trillion a year on outstanding debt but generate less than half the amount in income that can be used for repayments, according to an analysis of about 11,000 companies by research firm Liases Foras. Rolling over loans and tapping private-equity funds will be a struggle for all but the established names, like Oberoi Realty Ltd. and Godrej Properties Ltd., said Niraj Rathi, an analyst at India Ratings and Research.
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This drying up of liquidity comes on top of years of sluggish home sales, mounting inventories and falling prices. The difficulties were masked over as non-banks lenders rapidly increased exposure to developer loans not protected by rental revenues in recent years, according to Jefferies Group LLC. They accounted for more than a third of lending to the sector last financial year. Now there’s a risk of a vicious cycle developing between struggling lenders and distressed builders.

“Non-bank financial companies were facing developer defaults for more than 12 months but were brushing them under the carpet," said Vikas Chimakurthy, CEO, Kotak Realty Fund, a $1.5 billion realty-focused private equity fund. “We may start to see some of these issues come to the surface in the next few quarters.”


 Already real-estate and allied businesses account for the largest number of cases referred to India’s two-year-old bankruptcy process after a 2016 crackdown on cash, tightened regulations and a new tax damped sentiment. The metropolitan areas around national capital Delhi and financial capital Mumbai have been the hardest hit.Developers in the north have been jailed and home prices in the Mumbai dropped in 2018 for a second year...Read More