NBFCs Face Increasing Real Estate GNPAs

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As a thumb rule, whenever you see a pair of 4-letter acronyms in one headline, you should know that this can't be good news. So, what's happened?

For starters, non banking financial companies (NBFCs/non-banks) appear to be sitting on a ticking time bomb, even as the real estate sector celebrates its great revival. 

Wait... What?

Oh yeah. real estate gross non performing assets - a non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days - for NBFCs are on their way to the penthouse. 

Per a recent ICRA report: 

🙂 March 2019 - 2.1% GNPAs

😐 March 2020 - 5.1% GNPAs

🙁 March 2021 - 6.2% GNPAs

😣 September 2021 - 6.8% GNPAs

😨 Near future - expected to exceed 9% GNPAs 

Something Happened On The Way To Heaven

NBFCs that funded real estate companies were having a good run till H1, FY19 (September 2018), thanks to easy access to capital and ample investor interest, aided by a steady demand outlook.

However, come H2, FY19 and non-banks balked and witnessed a significant slowdown in growth, following the liquidity crisis, moderating their disbursements to check the bleeding.

And, as NBFCs grapple with fund-raising challenges and asset quality issues, their growth is taking the express elevator to the basement. 

The Way Ahead?

While the real estate sector is celebrating some emerging green shoots in recent quarters, mostly due to large listed developers with deep pockets, a sustained pickup in sales across geographies and segments is the key to a meaningful recovery in the sector, per ICRA.

And what happens to buyers in projects that are stuck in limbo? In reality, phrases like 'every man for himself' and 'free for all' come to our mind.