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India Inc could face debt servicing problems: IMF paper
Washington, Apr 29: India Inc could face problems in repaying their debts, posing risks to lenders, who will have to strengthen their monitoring of growing non-performing assets, warns an IMF working paper.
Washington, Apr 29: India Inc could face problems in repaying their debts, posing risks to lenders, who will have to strengthen their monitoring of growing non-performing assets, warns an IMF working paper.
An examination of balance sheets of Indian companies suggests that "an increasing number of firms could face the problems of servicing debt obligations, which may pose some risk to lenders," the paper titled 'overview of the Indian corporate sector 1989-2002' said here.
By several measures, the country's companies had become relatively less liquid in the 1990s, it said, adding interest coverage ratio -- defined as earnings before interest, taxes, depreciation and amortisation -- has dipped in the recent years, suggesting that Indian companies might be "facing Increased strain in meeting their debt service obligations."
The aggregate interest coverage of the corporate sector indicates that the potential npas of the sector remain high, the paper said, adding, "this underscores the need for close monitoring of the corporate sector in the future."
Noting that private and public sector companies accounted for roughly two-third of total bank credit, the paper said, "a sudden inability of the corporate sector to service its debt could have repercussions on the financial system." It also said dependence of external sources of funds, especially the debt finance, makes India's corporate sector relatively "vulnerable" to domestic financial shocks.
"At the macro level, this vulnerability stems from large fiscal deficits and sizeable government debt. This has the potential to crowd out private investment and slow growth," it said.
Bureau Report
By several measures, the country's companies had become relatively less liquid in the 1990s, it said, adding interest coverage ratio -- defined as earnings before interest, taxes, depreciation and amortisation -- has dipped in the recent years, suggesting that Indian companies might be "facing Increased strain in meeting their debt service obligations."
The aggregate interest coverage of the corporate sector indicates that the potential npas of the sector remain high, the paper said, adding, "this underscores the need for close monitoring of the corporate sector in the future."
Noting that private and public sector companies accounted for roughly two-third of total bank credit, the paper said, "a sudden inability of the corporate sector to service its debt could have repercussions on the financial system." It also said dependence of external sources of funds, especially the debt finance, makes India's corporate sector relatively "vulnerable" to domestic financial shocks.
"At the macro level, this vulnerability stems from large fiscal deficits and sizeable government debt. This has the potential to crowd out private investment and slow growth," it said.
Bureau Report