In an article titled "Myth Busted: India's top corporate are hardly regional weaklings", Standard & Poor's analyzed the operating, cash flow, and leverage data of India's top 100 corporates, the article concludes that on these parameters, the Indian corporate sector is by no means a laggard to its Chinese and ASEAN neighbors.
S&P MD – Corporate Ratings, Southeast Asia Michael Seewald, author of the report, spoke to CNBC-TV18's Sumaira Abidi and Reema Tendulkar about the report's findings.
Below is the transcript of the interview on CNBC-TV18.
Reema: Given the near term problems in areas like mining and power, can the Indian corporate debt picture get worse before it gets better?
A: The worry that [in the] short term before things get better [they will get worse] is not something, which we share. We have looked at credit trends for top representative Indian corporates in the region. If you look at the overall indebtedness, you are going to see that the picture is much more nuanced than you would guess.
There are indeed sectors, which have to cope with a lot of indebtedness, which is utilities, infrastructure on the one hand and also to a certain extent metals and mining but there are industries which are very robust which are set for growth and which have pretty low indebtedness.
Sumaira: I read your report and you had said that you expect corporates sales growth to go higher, do you see the bad loan problem of banks also receding anytime soon?
A: As far as bank loans are concerned, we see that the number or the pace of loan growth is slowing down and that it will take sometime. We are going beyond the 12 months to see the tide turning on the bad loan front. Why is that? It is because from our point of view to enable better loan ratios on banks' balance sheet, there needs to be deleveraging on the corporate side which is being fueled by increased demand and better earnings and recent investments to be put on stream.
So, this is something we see coming through slowly and this is not going to be a short-term phenomenon.
Reema: In the last two months we have seen the Reserve Bank of India (RBI) cut rates by about 50 basis points. In your estimate how important are rate cuts to push up growth?
A: We think the predominant point to trigger the growth cycle, the reforms. Interest rate cuts as we have seen are certainly important but we see the key trigger point on the reform side.
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