Economic slowdown: Around Rs 10.52 lakh cr of corporate debt at risk of default over next 3 years: Report

India Ratings and Research in a report said credit profiles of corporates are likely to remain under pressure as the economy grapples with a synchronised and prolonged economic slowdown.

Press Trust of India March 02, 2020 17:02:26 IST
Economic slowdown: Around Rs 10.52 lakh cr of corporate debt at risk of default over next 3 years: Report
  • India Ratings and Research in a report said credit profiles of corporates are likely to remain under pressure as the economy grapples with a synchronised and prolonged slowdown

  • The rating agency said about 25% of the vulnerable debt is likely to turn delinquent, resulting in additional Rs 2.54 lakh crore of delinquent debt

  • The report said the companies which are already stressed, lenders to at least half of these companies are likely to be required to take deep haircuts, given the inherently weak asset quality of these issuers

Mumbai: As the economy grapples with a prolonged slowdown, close to Rs 10.52 lakh crore of the corporate debt is at the risk of default over the next three years, says a report.

The Gross Domestic Product (GDP) growth slowed down to a nearly seven-year low of 4.7 percent in October-December 2019, according to the data released by the National Statistical Office (NSO).

The NSO has pegged the economic growth at 5 percent for FY2019-20 in its second advance estimates released last week.

Economic slowdown Around Rs 1052 lakh cr of corporate debt at risk of default over next 3 years Report

Representational image. Reuters

India Ratings and Research in a report said credit profiles of corporates are likely to remain under pressure as the economy grapples with a synchronised and prolonged economic slowdown.

"At least Rs 10.52 lakh crore of the corporate debt, which is 16 percent of system-level corporate debt, is vulnerable to default over the next three years," the rating agency said in a report on Monday.

The report has analysed in detail the degree of vulnerability of the top 500 debt-heavy private sector issuers after assessing the mix between productive and non-productive assets (i.e., asset quality) held by each issuer along with their refinancing risk.

It identifies the quantum of vulnerable debt by analysing the refinancing risk and asset quality for 11 sectors - real estate, power, auto & auto ancillaries, telecom and infrastructure, among others.

The rating agency said about 25 percent of the vulnerable debt is likely to turn delinquent, resulting in additional Rs 2.54 lakh crore of delinquent debt.

This is likely to result in incremental delinquencies to the extent of 4 percent of the system level corporate debt by FY2022, it said.

"In case the real gross domestic product growth slowdown intensifies (4.5 percent over FY21-FY22), incremental delinquencies could be higher by an additional 159 basis points to 5.59 percent of the system debt," the report said.

However, if there is a sharp recovery in GDP (growth to 7 percent over FY21-FY22), delinquencies could be lower by 87 basis points to 3.13 percent of the system debt.

The report said the companies which are already stressed (recognised as defaulters by banks and credit rating agencies), lenders to at least half of these companies are likely to be required to take deep haircuts, given the inherently weak asset quality of these issuers.

The majority of the exposure to these accounts, however, has already been provided for by the lenders, it added.

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