The impact of COVID-19 and associated policy response is likely to result in an additional Rs 1.67 lakh crore of debt from the top 500 debt-heavy private sector borrowers turning delinquent between FY21 and FY22, India Ratings and Research (Ind-Ra) said on Monday.
This is over and above the Rs 2.54 lakh crore anticipated prior to the onset of the pandemic, taking the cumulative quantum to Rs 4.21 lakh crore. This constitutes 6.63 per cent of the total debt (previous estimate: 4 per cent).
Given that 11.57 per cent of the outstanding debt is already stressed, the proportion of stressed debt is likely to increase to 18.21 per cent of the outstanding quantum. Ind-Ra expects the corresponding credit cost to be 3.57 per cent of the total debt.
The agency analysed in detail the degree of vulnerability of the top 500 debt-heavy private sector issuers after assessing the mix between productive and non-productive assets (that is asset quality) held by each issuer along with their refinancing risks.
The report buckets issuers in five categories of vulnerability -- low, moderate, high, extreme and stressed. Based on these buckets, it arrived at the estimates of debt at risk and expected credit costs.
Ind-Ra said that in a scenario where funding markets continue to exhibit heightened risk aversion, corporate stress could increase further by Rs 1.68 lakh crore, resulting in Rs 5.89 lakh crore of the corporate debt (9.27 per cent of the total debt) becoming stressed in FY21-FY22.
The resultant credit cost could be higher at 4.82 per cent of the outstanding book. Consequently, 20.84 per cent of the outstanding debt could be under stress in the agency's stress case scenario.
Although further revisions in the FY21 GDP growth expectations by itself may not lead to a change in Ind-Ra's stress estimates, the risk of a significantly prolonged recovery in the economic activity through FY22 and a larger-than-anticipated dent on demand could even result in stresses surpassing the agency's stress-case estimates.
With the progression of pandemic, policy response and its impact on economic growth, the actual buildup of stress could result in higher default rates and credit costs -- in line with the peak levels experienced in the last decade.
The tepid corporate capex coupled with muted revenue is likely to restrict credit growth in FY21. However, refinancing pressures will persist and securing timely funding could continue to prove challenging.
Ind-Ra expects the R 4.81 lakh crore fresh credit demand by the top 500 debt-heavy private sector corporates to emanate from a mix of receivable financing and a further drawdown of unutilised bank limits to shore up liquidity, meet cash flow shortfalls and to fund various isolated pockets of capex spending -- largely restricted to maintenance capex.
( With inputs from ANI )