Banks Sought Recast Of Record $12Bn Corporate Loans, Up 156% From FY11
Chennai: Economic slowdown coupled with pressure on profitability has pushed India Inc's default rate to a 13-year high at 6.3% for the fiscal ended March 2012. The pain continued in April when it stood at 5.2%.
"Indian corporates defaulted on a total of 2,969 debt instruments in 2011-12. This was the highest number of defaults in a year," economic thinktank CMIE said. The ratings-action ratio (RAR), measured as the relative frequency of upgrades to downgrades, witnessed a sharp fall in April 2012. It crashed to 0.2 from 0.5 in the preceding month. This was the lowest level of RAR since June 2009. This was also the eighth consecutive month of RAR remaining below 1. The RAR slipped below 1 in September 2011 and has remained below the critical level since.
For FY12, banks sought to restructure a record $12 billion in corporate loans through the Corporate Debt Restructuring Cell (CDR), an RBI-approved consortium of lenders – an increase of 156% from the year before. Corporate India's profitability was under stress during a major part of the fiscal. Consequently, profits fell 5.4% in 2011-12.
"Stress in operating environment, tightness in liquidity and a surge in entities in the lower rated categories were the main reasons for the high default rate. If the current tightness continues, credit quality may remain weak," Naresh Thakkar, MD of ratings agency ICRA said.
CMIE's Economic Intelligence Service was however bullish on corporate profitability in 2012-13. "We expect the revival in corporate India's profit performance. After growing by 13.7% in March quarter, its profits are expected to grow by 29.2% in 2012-13 after a 5.4% fall in 2011-12," CMIE said.
It added that sales growth at India Inc would be a modest 12.1% after growing a robust 20.2% in 2010-11 and 22.9% in 2011-12. "We expect the sales growth to come down from 18.1% in March quarter to 14.2% in the first half of 2012-13 and then to 10.2% in the second half," the bulletin said.
SQUEEZED BY LOW PROFITS
tCMIE says while default rate hit a 13-year high in FY12, the actual number of defaults was the highest ever at 2,969
tIndia Inc was under stress for most of 2011-12, due to which profits fell 5.4%
tEven April default rate remained high at 5.2%
tThinktank's intelligence service remains bullish on FY13, projecting 29.2% growth after 13.7% surge in March
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