PSU banks stand to forego a major portion of their pre-tax profits in the next fiscal due to bad loans in the real estate sector if property dealings do not go up. Ironically, transactions are falling due to high real estate prices.
A report by HDFC Securities, said Indian banks have aggressively lent to commercial real estate sector, particularly during FY06-10. In this period, the real estate loans saw a 40% CAGR, raising bank exposure to this segment to 3.2% from 1.9% in FY06. Net disbursals for March ’06-May ’10 given by the banks to real estate were nearly $15 billion.
From the total commercial real estate exposure of Rs 95,700 crore, just 22% of the funds went to listed companies and the rest 78% was given unorganised, small and medium developers. These companies do not have numerous alternatives of generating capital, and so are highly dependent on bank finance.
HDFC Securities report added, “Sensitivity suggests that 10% slippages in loans would impact the estimated FY12 pre-tax profits by up to 18% and networth by 2%”.
Get the best deals on loan offers
Some useful personal finance calculators
Also Read: