Credit profiles may deteriorate for as much as $114 billion of debt within the books of Indian corporations tackling rising curiosity rates and inflation, mentioned Standard and Poor’s (S&P) on Tuesday.
The deterioration in credit score profile is, nonetheless, unlikely to result in large-scale defaults even in a stress state of affairs because of buffers within the financial system and the businesses’ financials, mentioned the worldwide ranking company.
The stress take a look at of greater than 800 (largely unrated) Indian corporations and representing $570 billion in debt confirmed credit score profiles may deteriorate for as much as 20 per cent of Indian company debt, mentioned S&P in a report titled Inflation And Rate Hits Won’t Knock Out India Inc.
Rated issuers are normally higher positioned to resist rising rates and increased enter prices. This is as a result of important deleveraging during the last two years and improved liquidity place of corporations, mentioned Neel Gopalakrishnan, a credit score analyst with S&P Global Ratings.
Renewable power corporations are extra uncovered to rising rates because of giant capital expenditure. S&P doesn’t count on defaults in its rated portfolio, which additionally advantages from entry to home banks and capital markets.
India’s continued robust financial progress helps corporations’ revenues. Policy rates in India are rising from a low base, and most debtors are accustomed to excessive curiosity rates.
Indian debtors have robust entry to funding from home banks, together with government-owned banks, with decrease unfold volatility than capital markets. A big deleveraging by Indian corporates amid a protracted downturn up to now decade, S&P added.
Referring to implications for the Indian banking sector, the ranking company mentioned it anticipated the Indian banking sector to solidify its place. In the bottom case state of affairs, the sector’s weak loans will proceed to say no to 4.5-5 per cent of gross loans by March 31, 2024. This class contains nonperforming loans (NPLs) and performing restructured loans. In such a extreme stress state of affairs, NPLs within the banking sector may rise by 50 foundation factors (bps) to 75 bps. The influence on mortgages must be restricted, it mentioned.