Companies & Sectors
Stagnant property prices and risk aversion may lead to higher delinquencies in urban portfolio: Report
Delinquencies in India's non-banking financier's loan against property (LAP) portfolio could significantly increase in the next four quarters and may even exceed 5% on a static basis for a few players, says India Ratings and Research (Ind-Ra). 
 
In a research note, the ratings agency says, "A combination of stagnant property prices especially in metros and large cities, which are the primary markets for large and medium ticket LAP, and squeeze on refinancing due to risk aversion building up in some financiers is bringing stress to the fore.”
 
 
Ind-Ra sees signs of early stress in the LAP business loan pools assessed by it, including a sharp rise in 90 days past due delinquencies for some of the large players. 
 
Ind-Ra analysed data from the LAP portfolios generated over the last five years and observed that all loans, irrespective of their years of origination, are experiencing a concurrent rise in delinquencies in 2016. 
 
 
According to the ratings agency, the LAP market has now entered into a delicate phase with rising delinquencies accompanied by shrinking yields, thereby leaving limited buffers to absorb unexpected shocks. 
 
The average lending rate in the urban high-ticket LAP segment has shrunk to close to 300 basis points (bp) from 500bp over State Bank of India (SBI)'s base rate, which in Ind-Ra's opinion may not be adequate to absorb any spike in credit costs.
 
 
Increasing acceptance of non-residential properties as collateral may impact liquidation recovery, the ratings agency says, adding, "The quest to expand loan portfolio in the face of intensive competition has diluted the use of risk mitigation practices. Non-residential properties, including industrial, commercial, freehold land, unoccupied residential property, among others are increasingly being accepted as collaterals. This proportion could go as high as 30% of the portfolio for some players. While loan-to-values (LTVs) are lower for non-residential properties, realisation on liquidation is also lower for these properties."
 
 
Ind-Ra says its study on the recovery of SME loans pool acquired by asset reconstruction companies (ARCs) through non-residential collaterals indicates a poor recovery at 25% of principal outstanding (POS).
 
The ratings agency says it believes that the eventual losses through the liquidation route could be higher than what is being priced in by non-banking financial institutions (NBFIs). 
 
Ind-Ra's rated transaction pool data for the housing loan mortgage portfolio acquired by asset reconstruction companies since 2006 show a recovery rate of over 100% of principal outstanding, but when adjusted for the time value it drops to 70%.  
 
Over the last few quarters, portfolio churn, through balance transfer among NBFIs, has been the significant driver of incremental loan growth. Additionally, a large segment of the market utilised third-party intermediaries to expand its loan portfolio. This has led to less than optimum credit assessment rigour. Furthermore, elevated balance transfer has led to inadequate seasoning for a part of the portfolio, the ratings agency added. 
 
 
As per Ind-Ra observations, a small ticket LAP portfolio has shown a better performance than large ticket loans, though the portfolio is less seasoned. It says, "Newer geographies are facilitating volume growth and due to limited competitive intensity, are allowing lenders to price in the risk. Also, the recent applicability of SARFAESI Act (to systemically important NBFIs and on a loan amount higher than Rs1 crore) may improve portfolio performance as it could reduce slippages and improve recovery."
 
As per the ratings agency, credit appraisal systems based on borrower cash-flow assessment and standardised valuation practices would be critical risk mitigants. "We expects players with largely residential mortgage collaterals to fare well on asset quality metrics. Finally, strong equity and liquidity buffers and matched asset liability profile would continue to differentiate players in this segment," Ind-Ra concluded.
 

 

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COMMENTS

Akshay Kini

4 months ago

Properties are dead investment just like gold. Many young urban families are paying huge amounts for apartments, treating then like a lifetime investment. Little realising that the quality of construction gives these apartments a life of at most 25 years. Many people are going to have a shock in the next few years.

Mahesh S Bhatt

5 months ago

Simple Copy paste global fraud in 1980's by Japan & 2007 by USA so they were well developed & US is 1/4 of India's population Watch the fun in India screw up is well made now coverups & then burst ups
Mahesh

tapan sur

5 months ago

Prophets of doom may be lurking in the society since man started giving more importance to economic growth going North than any balance with agrarian growth.This has led to a situation where to save banks & govt's, more liquidity is pressed into a market which is not there but dominated by dead assets, assets which may have been entered into for the sole purpose of growth,without actual need of such assets.Property as an asset class is finished,& now good if ONLY one needs a roof over his own head.The proof is recent lowering of interest on loans,with an eye on growth of economy & relief to this asset class which was grasping for Oxygen.We may be in for some shock in times to come,as there will be a further dead asset added to the almost stagnant asset class.My take we are proceeding to dangerous times.Only asset class remaining today is the stock market through Mutual Fund the SIP route,rest is dead money.This is an alarm bell for those who want to hear some sane voice,rest B.O.L.

US FDA Looks to Redefine the Term 'Healthy' on Food Labels
The US Food and Drug Administration (FDA) has been doing some soul searching of late over key marketing terms popular in food advertising. Last fall it reached out to consumers to ask whether the agency should define “natural.” Now it is looking at another term prominent on many food labels that seeks to attract nutrition-conscious consumers: “healthy.” 
 
Under the current FDA definition, a food must be very low in fat to be marketed as healthy. But there are good fats – like those contained in nuts, avocados and salmon—as the KIND snack company argued after the agency ordered it to stop using the term because some of its bars exceeded the saturated fat limit. And what about foods high in sugar? Why are they allowed to be labelled healthy, KIND questioned the agency.
 
The FDA, noting that dietary recommendations have evolved, relented saying KIND could continue to label the bars “healthy” and signalled it will not enforce the current requirements if certain nutritional criteria are met. Meanwhile, companies can, at least for now, still use the term healthy on foods that meet the FDA’s current definition.
 
Here are a few whose “healthy” claims should be taken with, ahem, a grain of salt.
 
 
 
 
 
Consumers can weigh in on how they think the FDA should define “healthy” by submitting electronic comments here.
 
Find more of our coverage on food labelling terminology here
 

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COMMENTS

Anil Kumar

4 months ago

Good article!

Now, replacement Samsung Note 7 catches fire on US plane
Samsung woes over its Galaxy Note 7 smartphone are far from over it appears. Now, a replacement Note 7 device reportedly caught fire on a US flight, leading to cancellation of the flight after evacuation.
 
According to The Verge, Southwest Airlines flight 994 from Louisville to Baltimore was evacuated on Wednesday during the boarding process after a smoked Note 7 was spotted.
 
"All passengers and crew exited the plane via the main cabin door and no injuries were reported," the report said, quoting a Southwest Airlines spokesperson.
 
Brian Green who bought the new Note 7 from an AT&T store on September 21, had turned off his phone after the flight attendant call and all of a sudden, the device began to smoke.
 
Green immediately dropped the phone to the floor of the cabin.
 
According to Green, the phone was letting off a "thick grey-green angry smoke." The phone had burnt through the carpet and "scorched the subfloor of the plane".
 
"A photograph of the box shows the black square symbol that indicates a replacement Note 7 and Green said it had a green battery icon," The Verge reported, adding that Green has now bought an Apple iPhone 7.
 
According to Green, the phone was at around 80 per cent of battery capacity when the incident occurred.
 
Samsung later issued a statement: "Until we are able to retrieve the device, we cannot confirm that this incident involves the new Note7. We are working with the authorities and Southwest now to recover the device and confirm the cause. Once we have examined the device we will have more information to share."
 
Green's Note 7 was now with the Louisville Fire Department for investigation.
 
India's civil aviation regulator last week lifted the restrictions on in-flight use of the new Samsung Galaxy Note 7 smartphone -- but only those purchased after September 15.
 
On September 9, the Directorate General of Civil Aviation (DGCA) had prohibited the use of the high-end smartphone on-board aircraft.
 
The DGCA said the usage restrictions have only been lifted for mobile phones purchased after September 15. Restrictions still continue for Note 7s purchased before that date.
 
The select type of Samsung Galaxy Note 7 smartphone allowed to be used on-board have a green battery charge indication on their screen.
 
A Samsung India spokesperson said: "It is important to note that Samsung has not sold a single unit of Galaxy Note7 in India so far. The 'green battery icon' will apply to all Galaxy Note7 units that will be sold to customers in India when it is launched."
 
Samsung has recalled its Galaxy Note 7 smartphone over battery overheating issues globally.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  

 

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