Overdue property loans deals another blow to weakened Indian banks

Banks are struggling to recover around $20b of loans from developers.

Bloomberg reports that the slowing home market is another cause of worry for embattled Indian banks who are already facing a massive bad debt burden further aggravated by the fact that capital-short developers are having trouble repaying around $20b worth of loans.

Also read: India eyes stressed management company housing power sector's bad loans

Home sales volume in India have tumbled by nearly 40% in four years whilst prices have crashed by as much as 20% on average, prompting banks to assume control of land parcels and unfinished commercial projects that can be sold along with loans.

Outstanding loans from banks to realty developers stand at $26.21b (INR 1.8t) for the two years through May, according to central bank data.

Also read: India's massive bailout fails to lift banks out of earnings rut

“Banks have limited head room and expertise in bringing a stressed realty project back on track and hence it makes sense for them to sell down the loans and assets to firms specializing in the segment,” said S. Sriniwasan, managing director of Kotak Investment Advisors. “Their lack of willingness to take steep hair cuts has been delaying some of these deals.”

Here’s more from Bloomberg:

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