The number of perpetually loss-making zombie firms, who use more credit/external finance to service debt regularly thus enabling them to remain in business, absorbed about 10 per cent of the total bank credit extended to all firms in the Indian economy, the Reserve Bank of India (RBI) said in its monthly bulletin on February 16. Such firms are estimated to account for about 10 per cent of the total debt of the non-financial corporate sector.
The presence of zombie firms has dampened the effectiveness of monetary policy at the margin as they use borrowed resources more for their survival than for undertaking new investment, according to the article in RBI bulletin.
The RBI study said as one would expect, they are found in general to be highly leveraged; generate a negative return on assets over successive years and borrow more to survive rather than undertake new investment.