Poor investment cranks up the pressure for India
Mr Valecha also suggested that the system needs to revisit the role of covenants in lending practices.
Mumbai: Despite being a beacon of stability in a fragile world, India continues to face challenges of subdued private investment and trade demand. The financial sector continues to grapple with issues of stretched corporate balance sheet, a weak investment cycle and significant provisioning costs faced by public sector banks with consumption driving domestic demand.
India is also facing the ripple impact of global stagnation and thus a moderation in the growth trajectory of the Indian economy said Rakesh Valecha, senior director, credit & market research, India Ratings & Research.
Mr Valecha also suggested that the system needs to revisit the role of covenants in lending practices and well-defined covenants with effective monitoring will help
creditors have a greater say in the working of borrowers, especially in a situation of deteriorating performance.
Based on the agency’s analysis of 83 stressed corporate borrowers with a debt of Rs 10,000 crore, had banks in India restricted incremental debt to corporates using the efficacy of covenants, the time to recovery from organic cash flows would have been half of the current levels of 19 to 24 years for such borrowers.