Loans against property pose increasing risks

Loans against property pose increasing risks
17/12/2016 , by , in ALLIED

Moody’s Investors Service today said the overall asset profile of property retail loan portfolio of banks is stable although risks are rising in the non-traditional loan against property segment.

“Growth in loan against property (LAP) loans has outpaced overall retail credit growth in recent years, but relatively loose underwriting practices and a tightening in credit following India’s demonetisation would translate into higher asset quality risk,” Moody’s V-P and Senior Credit Officer Srikanth Vadlamani said.
“Disruptions in the borrowers’ cash flows may trigger delinquencies while tightening underwriting practices will make it more difficult for them to take out new debt,” it said.

Because LAP loans are typically extended to SMEs and self-employed individuals, a borrower’s ability to repay is often based on the lender’s assessment of the borrower’s income rather than actual reported income, Moody’s said.

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