Covid-19 may turn extra Rs 1.67 trn debt into delinquent assets: Ind-Ra

This is over and above Rs 2.54 trillion anticipated prior to onset of pandemic, taking the overall quantum to Rs 4.21 trillion, or 6.63% of total debt

The impact of Covid-19 and the subsequent policy response may turn an additional Rs 1.67 trillion of debt, among the top 500 debt-heavy private sector borrowers, into delinquent assets by FY22, according to India Ratings.

This would be over and above the Rs 2.54 trillion anticipated prior to the pandemic, thus taking the total to Rs 4.21 trillion. This comprises 6.63 per cent of the overall debt (previous estimate: 4 per cent).

Given that 11.57 per cent of the outstanding debt is already stressed, the proportion of the same may rise to 18.21 per cent. Ind-Ra expects the corresponding credit cost — money set aside as provision for bad loans — to amount to 3.57 per cent of the total debt.  The rating agency said it analysed the degree of vulnerability of the top 500 debt-heavy issuers after assessing the mix of productive and non-productive assets held by each issuer, along with their refinancing risks.

Based on vulnerability, it has categorised issuers as — low, moderate, high, extreme, and stressed. Based on these buckets, the agency has arrived at its estimate of debt at risk and expected credit costs. If funding markets continue to display heightened risk aversion, corporate stress could rise further by Rs 1.68 trillion, resulting in Rs 5.89 trillion of corporate debt (9.27 per cent of overall debt) becoming stressed by FY22, India Ratings added.

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.

Further revisions to the GDP growth estimate for FY21, by the agency itself, may not lead to a change in projections. However, any risk of a significantly delayed recovery in economic activity through FY22, plus a larger-than-anticipated dent on demand, could even result in stress surpassing the agency’s worst-case estimates, it added.