The rising debt burden of infrastructure firms is causing higher borrower concentration risk for Indian banks compared to other Asian markets, according to financial services firm Credit Suisse.
It added that each of the firms’ debt individually accounted for 1-2% of the total banking system loans.
Among the top ten infrastructure companies, Lanco witnessed the steepest rise in its debt levels over the past five years followed by Adani, GVK, Vedanta and GMR Group.
According to Credit Suisse, Lanco’s debt has grown at an annual rate of 76% during the past five financial years, while Adani’s debt grew 74%. Similarly, GVK’s debt shot up by 65%, Vedanta’s 58% and GMR Group by 55% over the past five years.
“The aggregate debt of these ten groups accounts for about 13% of total bank loans and about 98% of the entire banking system net worth. Therefore, surprisingly, now in terms of concentration risk, Indian banks rank higher than most of their Asian and BRIC counterparts,” said Credit Suisse in its report.
A strong loan growth of Indian banking system in the past five years is increasingly being driven by a select few corporate groups. “Given the high leverage, poor profitability and pressure from lenders most of these debt heavy groups have initiated plans to divest some of their assets. However, given that most domestic infrastructure developers are already over-geared, demand for these assets may be limited,” it explained.
The combined debt of the top ten groups grew over five times in five years from Rs 99,300 crore to Rs 5,39,500 crore at a compounded annual growth rate of 40%. In comparison, the total banking system loans grew by 20% annually during the same period.
Other firms such as Jaypee Group witnessed an increase of 41% in its debt component every year, while Videocon’s debt rose by 34%. Similarly, Essar Group’s debt increased by 31%Jindal Steel’s by 25%.