Mumbai: 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 691 billion rupees ($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% 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% drop from the previous year and the biggest decline on record – Bloomberg
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