(Bloomberg) -- An Indian shadow lender whose debt problems are being closely watched amid a broader industry crisis is facing pushback on its restructuring plan.

Some creditors to Altico Capital India Ltd., which focuses on real estate lending, are concerned that the absence of fresh equity in the proposal fails to address a dramatic surge in bad loans, said two people familiar with the matter, asking not to be identified because the information isn’t public.

Bad loans at Altico spiked to 23.8% of its loan book in the quarter ended September from 1.8% in the previous quarter, in part because of the non-bank financier’s inability to lend more to real-estate borrowers has left them with unsaleable half-built projects, said one of the people.

Rising bad loans at Indian lenders to the property sector come as a slowing economy squeezes builders, and as shadow lenders faced a dramatic cash crunch following a spate of defaults over the last 16 months. Deepening real-estate strains add to challenges for Prime Minister Narendra Modi as he grapples with reviving economic growth.

India Shadow Bank Altico Sweetens Restructuring Plan Amid Crisis

The Mumbai-based lender’s fate is being closely watched as the crisis among Indian non-bank financiers shows no signs of easing. A representative at the shadow lender declined to comment on the company’s bad loan situation and discussions with creditors.

Altico’s bad loans may continue to rise as the restructuring process drags on, perpetuating the vicious cycle, people said. Creditors may be unwilling to accept its plan until shareholders agree to pump in fresh cash through an equity infusion, which wasn’t on the table in Altico’s existing restructuring offer, one of the people said.

The pushback stems from a concern that the real-estate projects may be intrinsically unsaleable, and offering more cash to the builders may end up depleting funds available to creditors, one of the people said.

To contact the reporters on this story: Rahul Satija in Mumbai at rsatija1@bloomberg.net;Bijou George in Mumbai at bgeorge66@bloomberg.net

To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Beth Thomas

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