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'Diluted asset quality norms credit negative for banks'
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SME Times News Bureau | 13 Feb, 2020
Financial service company Moody's on Thursday said that the recent
revision of the asset quality recognition norms for the real estate
sector by the Reserve Bank of India (RBI) is credit negative for the
Indian banking system.
On February 7, the RBI loosened asset
quality recognition norms for Indian banks by allowing them to not
classify real estate loans as restructured for one year if the project
is delayed for reasons beyond the real estate developer's control.
"The
measure is credit negative for Indian banks because it will defer the
recognition of such loans from the real estate sector, and by extension
appropriate loss provisioning against them," Moody's said in a report.
Property
developers will have an additional year to address their funding issues
before the banks have to classify a loan as restructured.
However,
as per the report, while it will alleviate near-term asset quality risk
to the banks from the real estate sector, it will not address the
credit issues facing real estate developers.
Developers are
facing funding challenges because non-banking financial companies, the
key lenders to the sector, are facing funding challenges of their own,
it said, adding that property sales have also slowed, resulting in high
unsold inventory.
"Tight funding conditions are straining developers' ability to complete projects, and by extension their solvency," it said.
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