The impact of Covid-19 pandemic and the associated policy response is likely to turn an additional Rs 1.67 trillion borrowings of top 500 debt-heavy private sector firms into delinquent asset between FY21-FY22, according to India Ratings.
This is over and above the Rs 2.54 trillion anticipated prior to the onset of pandemic, taking the cumulative quantum to Rs 4.21 trillion. This constitutes 6.63 per cent of the total debt (previous estimate: 4 per cent).
Given that 11.57 per cent of the outstanding debt is already stressed, the proportion of stressed debt is likely to rise to 18.21 per cent of the outstanding quantum. Ind-Ra expects the corresponding credit cost, money set aside as provision for bad loans, to be 3.57 per cent of the total debt.
The rating agency said it has analysed the degree of vulnerability of the top-500 debt-heavy private sector issuers, after assessing the mix between productive and non-productive assets held by each issuer along with their refinancing risks.
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It has placed issuers in five categories of vulnerability – low, moderate, high, extreme and stressed. Based on these buckets, the agency has arrived at the estimates of debt at risk and expected credit costs.
If funding markets continue to be highly risk averse, corporate stress could increase further by Rs 1.68 trillion, resulting in Rs 5.89 trillion of corporate debt (9.27 per cent of the total debt) becoming stressed in FY21-FY22, India ratings said.
The resultant credit cost could be higher at 4.82 per cent of the outstanding book. Consequently, 20.84 per cent of the outstanding debt could be under stress in the agency’s stress case scenario.
Further revisions in economic growth estimates for FY21 GDP by themselves may not lead to a change in estimates. But the risk of a significantly prolonged recovery in the economic activity through FY22 and a larger-than-anticipated dent on demand could even result in stresses surpassing the agency’s stress-case estimates, it added.
This is over and above the Rs 2.54 trillion anticipated prior to the onset of pandemic, taking the cumulative quantum to Rs 4.21 trillion. This constitutes 6.63 per cent of the total debt (previous estimate: 4 per cent).
Given that 11.57 per cent of the outstanding debt is already stressed, the proportion of stressed debt is likely to rise to 18.21 per cent of the outstanding quantum. Ind-Ra expects the corresponding credit cost, money set aside as provision for bad loans, to be 3.57 per cent of the total debt.
The rating agency said it has analysed the degree of vulnerability of the top-500 debt-heavy private sector issuers, after assessing the mix between productive and non-productive assets held by each issuer along with their refinancing risks.
ALSO READ: Public debt accounts for 91% of Centre's Rs 94-trillion liabilities
It has placed issuers in five categories of vulnerability – low, moderate, high, extreme and stressed. Based on these buckets, the agency has arrived at the estimates of debt at risk and expected credit costs.
If funding markets continue to be highly risk averse, corporate stress could increase further by Rs 1.68 trillion, resulting in Rs 5.89 trillion of corporate debt (9.27 per cent of the total debt) becoming stressed in FY21-FY22, India ratings said.
The resultant credit cost could be higher at 4.82 per cent of the outstanding book. Consequently, 20.84 per cent of the outstanding debt could be under stress in the agency’s stress case scenario.
Further revisions in economic growth estimates for FY21 GDP by themselves may not lead to a change in estimates. But the risk of a significantly prolonged recovery in the economic activity through FY22 and a larger-than-anticipated dent on demand could even result in stresses surpassing the agency’s stress-case estimates, it added.
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