Banks’ Nightmare: Rs 5.65 Lakh Cr. In Corporate Debt May Go Up In Smoke

The Logical Indian

December 28th, 2015 / 9:56 AM

Source: rediff | Image Courtesy: jhansitimes

Reserve Bank of India Governor Raghuram Rajan has expressed concern over the enormous debt faced by India Inc. and the inadequacy of profit to service the same. About 20% of India’s debt faces trouble due to either operating losses, or inadequate operating profits to cover the debt in the last financial year.

A debt of ₹ 5.65 lakh crore (a fifth of the total debt in India) was shared by 67 of the 441 top indebted companies in India at the end of the year 2014-2015. This theoretically makes these companies financially insolvent, which means that the company is no longer able to meet it’s financial obligations.

This number has increased from 49 last year to 67 in 2014-2015. The return on capital employed has hit 7.4%, barely a few basis points ahead of the average interest cost of 7.1%.

This is the lowest value recorded in the decade; in 2004-05, the reported RoCE was about 18% while the interest cost was 6.9%. This forces companies to spend a greater proportion of their operating profit on clearing debts than on capital servicing and growth.

The companies spent up to 34.2% of the profit on debt expenditure this year leaving little for capital growth. Analysts have a divided opinion on the happenings.

A majority are worried that unless the corporate earnings pick up, banks could be facing serious trouble, while some others see this as a cyclical trend which will get resolved as growth resumes and asset utilisation increases.


Contributors

Edited by :

Share your thoughts..

Related Stories

Air Quality Index Delhi

Shocked By Delhi’s Pollution, Bryan Adams Shares Photo Of His Dust & Smoke Silhouette

Air India Flight Bed Bugs

Bed Bugs On Air India Flight: Business-Class Passengers Recount Their 17-Hours-Long Nightmare

Under Debt Of Rs 22,100 Cr From Indian Banks, Videocon Chairman Denies Reports Of Fleeing Country

My Story: A Happy Farewell Night Turned Into A Nightmare. They Asked Us, “How Much/What’s The Rate?”

Finance Bill, 2017

Finance Bill, 2017 Is A Nightmare For Even An Honest, Taxpaying Citizen: Know Why

My Story: My Pregnancy Was A Medical Nightmare. My Doctor Announced That He Could Hear 3 Different Heartbeats

Latest on The Logical Indian

Get Inspired

Indian-American Woman Honoured With Presidential Award By White House For Her Work Against Human Trafficking

News

Amritsar Train Tragedy: Punjab CM Orders Magisterial Inquiry Into The Accident Which Killed Over 60

News

Areas Surrounding Siang River Alerted Of Flash Floods After Formation Of Artificial Lake In Tibet

Awareness

School Management Committee – Delhi Govt’s Initiative To Involve Parents In Decision Making Of Schools

Awareness

Are We Eating Poison Today? A Look At The Incessant Use Of Pesticides In Our Food

News

Good News: Population Of Ganga River Dolphins Rises To 33 From 22 In 2015

x

Stories that deserve attention, delivered to your inbox!

Handpicked, newsworthy stories which deserve the attention of a rational generation.