The net profit fall also triggered a 10.48 per cent fall to Rs 49,895 crore in tax payment by corporates during the period, as per the figures based on a sample of 2,179 companies.
India’s corporate sector witnessed an 11.97 per cent decline in its net profit during the first quarter ended June 2019 quarter even as the interest costs went up by 22.16 per cent to Rs 65,485 crore along with a demand slowdown that hit India Inc. The net profit fall also triggered a 10.48 per cent fall to Rs 49,895 crore in tax payment by corporates during the period, as per the figures based on a sample of 2,179 companies, The Indian Express reported. Moreover, their operating margins declined by 34.30 bps to 14.84 per cent due to the slowdown.
The sector paid high interest even as the Reserve Bank of India (RBI) had reduced the key policy interest rate by 75 basis points (bps) between February and June this year but banks were slow in passing on the rate cut benefit with their customers. The total deduction in 2019 stood at 110 bps as the RBI had another 35 bps repo rate cut in monetary policy meeting earlier this month.
The cut “wouldn’t have made any impact on the corporates in the near term as these were old loans priced earlier. These loans would have been given years ago at a higher interest rate,” according to a senior official of a nationalised bank. “Fresh loans issued to corporates would be priced lower according to their credit rating,” he said.
Banks were unwilling to lend as some of the large corporates are in the defaulters’ list. This has led to a lack of credit to some sectors. “Banks had tightened their lending norms to many sectors after the surfacing of the NPAs and the liquidity crunch in the NBFC sector,” the official said.
HDFC’s chairman Deepak Parekh during the company’s annual general meeting recently had said that access to credit is limited to select NBFCs and HFCs. “Banks are reluctant to lend and there has been a flight to safety where a select, few, high-rated NBFCs (non-banking finance companies) and HFCs (housing finance companies) have access to funding.”