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Are Indian companies and banks vulnerable ?

A recent International Monetary Fund (IMF) working paper titled “Corporate Vulnerabilities in India and Banks Loan Performance” by Peter Lindner and Sun Eun Jung finds that, “Gauged by the debt carried by the most vulnerable component of firms, the Indian corporate sector’s vulnerability to severe systemic shocks has increased to levels not seen since 2001.”

This has naturally affected the banking sector, too, leading to high levels of bad debt and restructured assets.

The chart shows the percentage of lending that have been made by banks to firms that have an interest cover of less than 1.

The chart shows that while the position in 2012-13 is worse than during the aftermath of the financial crisis, it is much better than during 1998-2002.RBI

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