India's mini-Lehman moment: Bankruptcies double at real estate developers

The number of Indian real estate companies tipped into insolvency has doubled in less than a year since the collapse of a key shadow bank, an event often compared to the Lehman crisis that squeezed American funding markets a decade ago.

As many as 421 developers entered bankruptcy court by the end of June, up from 209 in September 2018, around the time when the government seized control of Infrastructure Leasing & Financial Services Ltd. The move triggered a credit crunch for smaller financiers and property firms, which depend on funds from shadow lenders.

The numbers will probably increase, according to Vivek K. Chandy, joint managing partner at law firm J. Sagar Associates. Of the 421 cases, 164 have been closed, he said, which means they were resolved, withdrawn, or the companies faced liquidation.

The growing number of insolvencies highlight Indian property developers’ inability to complete apartments and meet their debt obligations amid the funding crisis. The crunch is feeding into -- and worsened by -- an economic slowdown that is hitting Indians’ demand for goods and services.

“Banks have become more vigilant. Markets are not too good, money is tight, compliance has increased,” Chandy said. “Home owners have now become financial creditors by legislation, so they will be able to put more pressure on real estate companies and can start insolvency proceedings.”