The debt servicing capacity and leverage of ‘weak’ companies in the sample surveyed by the Reserve Bank of India deteriorated considerably in 2016-17, according to its June 2017 Financial Stability Report (FSR). The RBI said the analysis shows around 17% of the sample companies were ‘weak’ as on end of March 2017, compared with 16.4% in March 2016. The share of these ‘weak’ companies in total debt of the sample increased to 30.2% during the second half of 2016-17 from 28.7% during the year-ago period. A silver lining comes in the form of a declining debt-equity ratio (DER) of these ‘weak’ companies to 1 from 1.8. The proportion of ‘leveraged weak’ companies in the sample declined to 5% from 5.7%. The share of ‘leveraged weak’ companies in total debt of the sample also declined.
Total borrowings by companies in chemical, computer, electrical machinery, hotel, iron & steel, papers, pharmaceutical, real estate, rubber and transport industries decreased during FY17. The sectors that witnessed increase in borrowings were cement, construction, power, food products and textile industries. Automobile and telecommunication industries showed a substantial increase in borrowings, the central bank indicated.
A risk profile of select industries as of end March 2017 showed that the telecommunication industry had the largest debt with negative profitability. The industry also had relatively high leverage. Power, construction and iron & steel industries suffered from relatively high leverage and high interest burden, the RBI said.