Lenders seek higher security cover for funding real estate developers

Our analysis of security cover of developer loans shows that lenders are seeking higher security from developers in the backdrop of rising risk.

Some key takeaways:

  1. Security cover has been rising since 2017 when it was 1.55 X to 1.66 X in 2020. This is inline with the rising risk associated with the sector.
  2. The security cover was large loans (>500 cr) is 1.48 X which is a 20% discount to average security cover of 0-50 cr loans. The reason for this could be that large loans are taken by larger developers and the risk weightage for larger developers may be lower compared to smaller developers.
  3. For high interest rates (>15%) the security cover is 1.86 X which is a premium of 30%+ over loans at interest rates of <10% (which are largely lease rental discounting loans).

Security cover analysis

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