Corporate stress

Nearly half of the top 500 corporate borrowers hold 42% of the total outstanding debt of R28 lakh crore. Of this, R5 lakh crore is stressed and R6.7 lakh crore falls in the elevated risk of refinancing (ERR), raising concerns of financial stress for India Inc, a study by India Ratings & Research shows.

Already, R4.6 lakh crore of the R6.7 lakh crore in the ERR category may have become delinquent. Incremental stress is likely to emanate from the remaining R2.1 lakh crore, and refinancing could be a challenge for ERR entities whose interest cover ratio is below one. Public sector banks are rationing credit due to mounting losses and capital constraints.

The state of Indian banks has deteriorated High ease of refinancing R1.57 8.64 R15,300 Medium ease of refinancing R1.47 7.66 R55,700 significantly in the past few years as companies in sectors like metal & mining, infrastructure and construction have failed to pay back loans on time. Moreover, RBI’s strict enforcement of bad loan recognition norms since last year has led to a surge in overall non-performing assets. The overall stressed advances in the banking system rose to 11.5% of total advances in March 2016 from 9.2% in March 2013, according to the latest Financial Stability Report of RBI.

Going ahead, weak demand would persist in stressed sectors such as infrastructure, construction, metal & mining, real estate, power and textiles, which will affect balance sheets of companies in these sectors. Elevated risk of refinancing R6.72 R1.27 R68,800 Stressed R5.10 R1.01 R68,800

ILLUSTRATION: SHYAM