NEW DELHI: The Covid-19 pandemic and the subsequent severe economic fallout may result in a large rise in the number of corporate delinquencies, note India Ratings and Research.
According to the ratings agency, the pandemic is likely to lead to Rs 1.67 lakh crore in unpaid debt among the top 500 corporates in India as many turn delinquent by March 2022.
This would take the cumulative quantum of corporate delinquencies to Rs 4.21 lakh crore or about 11 per cent of overall debt.
The ratings agency also stated that there have been marked concerns over the banking system’s asset quality in the wake of the pandemic and the RBI’s six-month moratorium extended as a relief has resulted in much of this stress not yet being recognised.
The pandemic and the associated policy response will result in additional stressed loans worth Rs 1.67 lakh crore from the top 500 debt-heavy private borrowers as many become delinquent.
“Before the onset of the pandemic, debt worth of Rs 2.54 lakh crore was estimated to turn delinquent till FY22,” it noted, adding that the additional Rs 1.67 lakh crore due to the pandemic will take the overall delinquency to Rs 4.21 lakh crore.
This will constitute 18.21 per cent of the corporate sector’s debt, up from the current 11.57 per cent of debt which is considered as stressed.
Post slippages, incremental stress and loss given default, the agency noted that credit costs due to increased provisioning will rise to a substantial 3.57 per cent of the debt.
But, if markets continue to exhibit heightened risk aversion, it is possible that another Rs 1.68 lakh crore of corporate debt would fall into the stressed category, resulting in Rs 5.89 lakh crore of corporate debt turning stressed by FY22.
Credit costs would rise to 4.82 per cent of the system debt in this case, it noted. This excess demand for fresh credit is expected to be serviced through a mix of receivable financing and drawdown of unutilised bank limits.
Stressed loans
Before the onset of Covid-19, debt worth of H2.54 lakh crore was estimated to turn delinquent till FY22
Post slippages, the overall delinquency is worth to be H4.21 lakh crore, comprising about 18.2 per cent of the corporate debt