The credit rating of 20% of Indian corporate debt is likely to deteriorate due to rising inflation and interest rate, according to Standard & Poor’s Global Ratings.
That, however, is unlikely to cause large-scale defaults due to buffers in the economy and company financials, the ratings agency said in a report based on a stress test of more than 800, mostly unrated, Indian companies representing $570 billon in debt.
Improved liquidity position as well as significant deleveraging are the reasons for the companies to resist the inflationary pressure and stay afloat, according to Neel Gopalakrishnan, credit analyst at S&P Global Ratings.
The duration of high-rate regime would be critical with short-term rate shock less likely to cause damage while a durable rate shock could hurt debt dynamics, S&P said.
India’s banking sector to remain resilient with the non performing loans and performing restructured loans likely to continue to decline to 4.5%-5% of gross loans by March 31, 2024.
In the stress scenario, sovereign ratings would come under additional pressure as economic growth and government debt burden channels would raise the government’s already elevated interest service bill.
In a severe stress scenario, the ratings agency anticipates that the non-performing loans could rise by 50 to 75 basis points, but the impact on mortgages should be limited.
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