Economy

Corporate India’s financial health worsens for the fourth straight month

Bloomberg Mumbai | Updated on September 12, 2019 Published on September 12, 2019

Care Ratings Debt Quality Index fell to a 20-month low in August 2019.   -  REUTERS

The deteriorating credit profiles are set to worsen bad debt woes.

 

The credit profile of Indian firms has worsened to a 20-month low, adding pressure on the government to come up with more measures to kick-start a sputtering economy.

Debt quality deteriorated for the fourth straight month in August, the Care Ratings Debt Quality Index showed. That’s the longest losing streak for the index that tracks 1,601 domestic firms since April 2014.

Essentially, the economic slowdown is weighing on the quality of debt in the country, said Madan Sabnavis, chief economist at Care Ratings Ltd. We should see improvement in the quality once the economy picks up.

Key Insights

India’s plans to expand its corporate bond market may come under pressure if credit quality continues to decline Deteriorating financial health of firms is set to worsen the bad loan mess in the country, which already tops the list of those with the world’s worst bad-debt ratios.

Banks may have to cough up more capital in provisions to meet risk-weight requirements after downgrades, hurting their credit growth India is making all efforts to boost the economy, Finance Minister Nirmala Sitharaman said Tuesday.

Key Facts

A string of debt defaults and a prolonged credit crunch following the collapse of major shadow lender, IL&FS group, last year have halved sales of rupee bonds rated below AAA so far this year to ₹69,100 crore ($9.6 billion).

The government and central bank have announced a slew of measures including mergers of several state-run banks to jump-start the economy.

India’s gross domestic product growth cooled for a fifth straight quarter to 5 per cent in the three months ended June, the slowest pace since March 2013.

Passenger car sales have contracted for 10 straight months, plunging to 115,957 units in August, a 41 per cent drop from the previous year and the biggest decline on record.

Published on September 12, 2019
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