No end in sight for Indian corporate debt crisis

Subject

Corporate debt.

Significance

Even as India is being celebrated as the fastest-growing economy, evidence is rising that its pile of corporate debt could be destabilising. The largest domestic bank, the publicly owned State Bank of India, has written to mutual fund houses seeking a 'compensation policy' in case of default. The Securities and Exchange Board of India -- the market regulator -- is reportedly contemplating tightening the rules relating to mutual funds' investments in corporate debt, because of concerns over excess debt exposure.

Impacts

• Corporate debt levels are somewhat obfuscated by restructuring and legal covers for corporate finances.
• Should PSBs continue to curtail credit provision, domestic consumption will decline, choking growth.
• Additional divestment of PSBs is likely.