India Rating expects corporate stress to increase to 18.21 per cent of outstanding debt

India Ratings and Research (Ind-Ra) on Monday released a report in which it expects the top 500 debt-heavy private sector borrowers turning delinquent due to COVID-19, would add nearly Rs 1.67 lakh crore additional debts during FY21-22E.

The agency further added that this could take the proportion of stressed debt to 18.21 per cent of the outstanding quantum from 11.57 per cent at present.

This estimated stress will be over and above Rs 2.54 lakh crore anticipated prior to the onset of the pandemic, taking the cumulative quantum to Rs 4.21 lakh crore. This constitutes 6.63 per cent of the total debt while it expects the corresponding credit cost to be 3.57 per cent of the total debt.

Ind-Ra has analysed the degree of vulnerability of the top 500 debt-heavy private sector issuers in detail, after assessing the mix between productive and non-productive assets (i.e. asset quality) held by each issuer along with their refinancing risks. The agency has classified issuers in five categories of vulnerability i.e. low, moderate, high, extreme and stressed.

It expects that in a scenario wherein funding markets continue to exhibit heightened risk aversion, corporate stress could increase further by Rs 1.68 lakh crore, resulting in Rs 5.89 lakh crore of the corporate debt, or 9.27 per cent of the total debt thereby, becoming even more stressed in FY21-22E. The resultant credit cost could be higher at 4.82 per cent of the outstanding book.

Consequently, it has been found that 20.84 per cent of the outstanding debt could be under stress in the agency’s stress case scenario. The agency said that any revision in the FY21E GDP growth expectations may not lead to a change in its stress projections. Besides, the risk of an extensively prolonged resurgence in the economic activity through FY22E and higher dent on-demand than expectations could even result in stresses surpassing the agency’s stress-case estimates.

The agency also expects the credit growth to fall 15 per cent in FY21 as a result of the tepid corporate Capex, coupled with muted revenue. However, refinancing pressures will persist and securing timely funding could continue to prove challenging.