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CORPORATE
Too big ue to the ongoing slowdown, it by total assets calculate this ratio. Total
companies with high debts
debt is the sum of all long-term liabili-
ties and is identified on the company’s
are likely to be done in and
balance sheet. Most of the concentra-
face trouble in future. The
to fail D impact of slower economic tion of stressed debt in India is among
expansion might be more pronounced
industrial, energy and utilities sectors.
on companies with heavy debt because
The frequent rate cuts by the Reserve
earnings at these companies are more
Bank of India have cushioned some of
is false likely to miss estimates, putting a ques- the blow of high indebtedness among
tion mark on financial projections and
Indian corporates. The change in stance
even survival in the long run.
of the Reserve Bank of India, which has
cut the repo rate by on so many occa-
A study by McKinsey & Company has
found that “Indian companies are under
sions, has probably helped Indian corpo-
notion severe stress to service their debt obli- rates avoid a serious debt scare.
gations”. According to the study by Mc-
A high interest rate scenario might
have seen Indian corporates struggle to
Kinsey & Company on the indebtedness
of Asian corporates the share of their
four continuous rate cuts in 2019, and a
long-term debt having an interest cov- repay their outstanding debt. The RBI’s
erage ratio of less than 1.5 times of oper- low interest rate scenario in India have
ating profits rose significantly over the lowered the likelihood of a debt crisis
Number of billionaires may past decade. The low interest cover- in India. McKinsey study says that if the
drop as high debt companies age ratio shows that a large part of the trade war between the USA and China
set to become some of the earnings is going to service debt and any continues and as a result foreign capital
flows evaporate, there could be an in-
spike in interest rates could trigger a debt
biggest victims of the crisis in Asia. crease in debt stress in Asia, which could
ongoing slowdown, The debt ratio gives company leaders impact India as well.
insight into the financial strength of the The fact is that there is insolvency risk
reports tehelka bureau company. Taking total debt and dividing in corporate sector in India because bor-
