Number of highly leveraged companies jumps to 15.3% from 13.6%: RBI

MUMBAI: The number of "highly leveraged" companies rose to 15.3 per cent as of September 2015 from 13.6 per cent a year ago, says a RBI report.

"The proportion of companies among the leveraged companies with debt equity ratio (DER) greater than or equal to (>=) 3, termed as 'highly leveraged', increased from 13.6 per cent in September 2014 to 15.3 per cent in September 2015," the central bank said in its Financial Stability Report (FSR).

The share of debt of these companies in the total debt increased from 22.9 per cent to 24.9 per cent, it added.

The report said the proportion of companies with negative net worth or DER >=2, termed as 'leveraged', shot up over the last three-and-a-half years from 18.4 per cent in September 2014 to 19.4 per cent in September 2015.

"Their share in the total debt of all companies in the sample marginally declined to 30.5 per cent in September 2015 from 33.8 per cent in March 2015."

The FSR report analysed the performance of the corporate sector using select non-government non-financial (NGNF) listed companies for the period FY11 to FY16.

The result indicated that after deterioration in the first quarter of FY16, critical performance parameters such as operating profit, EBITDA, net profit and interest coverage ratio (ICR) showed improvement in the second quarter.

The profitability of NGNF listed companies (2,386 of them are publicly traded) which has declined in the second half of FY15 marginally picked up in the first half of FY16, while the solvency ratio displayed significant improvement.

The debt servicing capacity, measured by ICR, also improved in the first half of FY16.

The corporate leverage, measured by debt to equity ratio (DER), remained around the same level during the period September 2014 to September 2015, the report said.

The leveraged weak companies with lower debt servicing capacity and high leverage may put pressure on the already deteriorated asset quality of bank loans in adverse situations, it added.

The overall impact on account of assumed default by weak NGNF companies could be about 10.4 per cent of total bank credit of SCBs. The impact could be about 7.3 per cent in case of assumed default by leveraged weak NGNF companies, the report said.