India Inc. unable to service debt: Credit Suisse

The corporate debt of Indian companies remained high in the three months ended March as the ability to cover pending interest payments fell to a new low, according to Credit Suisse. The total debt stood at Rs 14.5 lakh crore in the fourth quarter, slightly lower than the Rs 14.8 lakh crore in the previous three months, according to the report. While the overall corporate stress level remained largely unchanged, the share of debt with interest coverage ratio of less than one was at 40 percent of the total debt, down 1 percentage point from the previous quarter.

Interest coverage, the ratio of operating profit to interest expenses, is used to determine how easily a company can service interest payments on outstanding debt. A ratio of one or more means that the company will cover its cost of debt for the year. Across key sectors, the share of companies with interest cover less than 1 remains high. The interest coverage of power, telecom and steel sector stands at 0.7, 0.57 and 0.55, respectively.

Weakening corporate credit quality is the primary cause for the increase in bad loans across the banking system. Bad loans have risen to about 17 percent of the total loans, which is the highest among major economies. The Reserve Bank of India has cornered 12 accounts for resolution under the Insolvency and Bankruptcy Code after the government stepped in to give the financial regulator powers to order banks to clean up soured loans on their books.

The report finds that profitability of Indian corporates has remained subdued with their operating incomes falling 4 percent, sequentially. At the same time, the weaker companies with interest coverage of less than one percent have seen their operating incomes fall 35 percent Y-o-Y.