InvestorQ : With the lockdowns and the Coronavirus problem continuing, do you see more loan defaults by companies in this quarter?
Neelam Naik made post

With the lockdowns and the Coronavirus problem continuing, do you see more loan defaults by companies in this quarter?

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Priyanka N answered.
6 months ago
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Actually, that is the big worry as the economics of many companies have deteriorated in the last few months. The big worry is for banks and mutual funds with a large exposure to the bonds of corporates. Corporate earnings have already started reflecting the early pain from the lockdown but financial markets are yet to price in the impact. Close to 1000 debt instruments mature between May and December 2020 and that is the area of worry for the banks and mutual funds. Financial markets are anticipating a spike in defaults with over 20-25% of outstanding loans at risk of going bad. Indian banks are currently grappling with Rs.935,000 crore ($123 billion) of soured loans, or gross NPAs of about 9.1%. Rating agencies are projecting that NPAs could double to 20% by March 2021. The immediate worry will be for the debt funds that have Rs.350,000 crore exposure to debt maturing over the next 8 months. Defaults could just have a domino effect in such cases.

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