A new report from Credit Suisse lays bare the real challenge in tackling the mountain of bad loans in corporate India. About 40 percent of India's total USD 530 billion corporate debt is with firms that don't even earn enough to pay the interest cost, the report titled 'House of Debt' states.
The turnaround in the health of corporate India remains so sluggish — that 40 percent of Indian debt remains in the hands of corporates that have an interest cover of less than one, which means they do not make enough operating profits to be able to cover interest payment, the report states.
The study done by the Credit Suisse reveals corporate India’s aggregate debt of USD 530 billion.
The corporate debt has shown a marginal improvement to 40 percent in September quarter as against 42 percent in June quarter. This was mainly on account of Tata Motors exiting the list of indebted companies.
Out of USD 530 billion debt, 29 percent is from companies that have reported losses and 61 percent of this aggregate debt is with companies that have not covered interest payments for at least 11 of the past 12 quarters.
Metals, power and telecom account for more than 40 percent of the unserviceable debt which is spread across the sectors.
The steel sector has shown growth in earnings before interest, tax, depreciation and amortization (EBITDA) but the debt share of weak companies remained elevated at 55 percent. In power sector, debt with weak companies has declined to 43 percent in the second quarter from 64 percent in fourth quarter 2017. The share of debt of weak companies in the telecom sector stood at 60 percent in the June quarter of this year and continues to rise.
However, most of the steel loans have been recognised by the banks as non-performing assets (NPA) but they are yet recognised power sector loans as NPA that could hurt them in the future.