Companies must repay an unprecedented 5.9 trillion rupees ($83 billion) of local notes this year, just as corporate defaults spike. Many firms are already struggling after economic growth slumped to its weakest since 2009.
That’s putting India behind China, Indonesia and a few others in the region. Credit market scares have impeded Prime Minister Narendra Modi’s efforts to revive growth.
Chief among the problems is a lingering crisis at shadow banks that started in 2018, with a shocking default by then high-rated lender IL&FS. The woes mounted last year when major mortgage lender Dewan Housing Finance Corp missed repayments.
So it is concerning that shadow banks and other financial companies account for the biggest group of bond maturities this year, at 4.2 trillion rupees. Such lenders extend credit to everyone from small shopkeepers to property tycoons.
While there are tentative signs of recovery in certain areas of the shadow bank sector, a funding squeeze has kept borrowing costs high. The financiers pass that on by charging their own customers more for money.
The picture is not all gloomy, though. Policy makers have taken steps to keep liquidity abundant. And more than half of the bonds due this year carry top-notch ratings, while another 17% are notes that are graded between AA+ and AA-.
That suggests the risk of rampant failures should be lower. But as the stunning fall of formerly top-rated IL&FS illustrated, even that is no guarantee that there will not be bumps ahead.
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