The total value of stressed loans to real estate sector currently stands at roughly 2.5 trillion only marginally lower than the quantum of such debt at the end of 2019, according to estimates by Anarock Consultants. One reason for the very slight fall in stressed realty loans is that a big chunk of90,000 crore is stuck in cases that are undergoing the corporate insolvency resolution process (CIRP).

Prachish Vasudev, managing director (real estate and construction), Alvarez & Marsal India, pointed out the resolution of projects admitted to the National Company Law Tribunal is proceeding slowly. This, he said, was keeping the outstanding stressed assets from coming down meaningfully.

Moreover, there are a large number of real estate projects waiting to be admitted to the corporate tribunal, he added.
By a rough reckoning, there are close to 300 real estate cases that have been admitted to the NCLT and are awaiting resolution. The number of projects that are in the queue, waiting to be admitted is believed to be significantly higher, possibly close to 1,000.

Vasudev observed that with the process not moving at the speed originally envisaged, many lenders have been forced to improvise by going in for negotiated settlements with developers.

With the CIRP process not moving at the speed originally envisaged, many lenders have been forced to change their strategy by going in for negotiated settlements with developers. A negotiated settlement involves either lenders taking a haircut and letting go of a certain amount of principal and/or accrued interest in return for priority closure of the outstanding loan. Often the borrowers negotiate a haircut and arrange for capital from an alternate source to repay the loan.

The fall in the average level of recoveries from cases in the NCLT is discouraging lenders from approaching the court for resolution. “The average recovery has gone down in the IBC process from 30-35% earlier to sub-20% in the last 6-8 months. So, lenders of distressed loans are in a bind now as after four years of waiting if you recover only 20% in some cases, it deters them from taking cases to NCLT,” Vasudev said.

The bulk of the stressed loans or approximately 63% have been disbursed by non-banking financial corporations (NBFCs) and Housing Finance Corporations (HFCs); the remaining 37% of the money is owed to banks.

Of the total of 2.5 trillion, about 30% or74,100 crore is in the high stress category and would be difficult to resolve. The remaining 70% or Rs 1.73 trillion is categorised as medium stress and is in the process of being recovered.

The SWAMIH Investment Fund (Special Window for Affordable and Mid-Income Housing Projects) formed in 2019, under the aegis of SBICAP Ventures, is aimed at easing stalled projects with last mile funding. However, SWAMIH’s target corpus of 12,500 crore with a greenshoe option of12,500 crore, may not be big enough. “SWAMIH is definitely a step in the right direction, but the magnitude of the problem is such that it would need to increase by about 5x,” a senior executive at a management consulting firm said.