IMF warns India of vulnerable corporates, PSB balance sheets

The International Monetary Fund (IMF) has cautioned India against vulnerable financial positions of corporates and public sector banks' (PSBs) balance sheets, besides any slowing down of the reform process.

According to IMF's staff report, persistently high household inflation expectations and large fiscal deficits remain the key macroeconomic challenges, resulting in limited policy space to support growth through demand management measures.

It should be noted that IMF has pegged India's economic growth rate at 7.3 per cent for 2015-16, picking up to 7.5 per cent in 2016-17, supported by stronger domestic demand. Official estimates, however, peg the growth at 7.6 per cent in the current financial year and 7-7.75 per cent in the next.

IMF says Indian corporates now are some of the most leveraged across emerging markets. At end-2014-15, the median debt-to-equity ratio of the most leveraged Indian corporates (the top 25 per cent) stood at 149 per cent. While it has edged down marginally relative to end-2013-14 (156 per cent), it is still higher than in most other emerging market economies.

Both debt levels and leverage are highly skewed towards large corporates and select key sectors. The report said the top one per cent of firms in India accounts for about half of overall debt, as do corporates in two sectors: infrastructure (including power, telecom and roads) and metals (including iron & steel). Both sectors were subject to strong credit growth in recent years, with loans rising by an average of 27 per cent and 22 per cent a year, respectively, between 2008-09 and 2012-13.