Credit crisis is easing in India, but only for safest corporate borrowers

The cash squeeze in the nation’s shadow banking industry, which lends to everyone from street vendors to property tycoons, shows few signs of abating

India’s credit crisis appears to be winding down for the safest borrowers, but it’s hardly time to celebrate as weaker firms still struggle. Policy makers have been fighting to prevent debt markets from seizing up since the shock collapse of shadow bank IL&FS Group last year. They can take some cheer in this: spreads on top-rated corporate bonds have dropped back near where they were when the crisis began in September last year.

Much work remains to be done. Lower-rated companies are still struggling with a cash squeeze and rising borrowing costs. Economic growth slowed to 4.5 per cent last quarter, the weakest in more than six years. Corporate financial health has deteriorated to the worst in at least seven years, according to a Care Ratings index. A series of defaults are keeping investors on edge, said Anil Gupta, a vice-president at Mumbai-based credit rater ICRA Ltd.

The cash squeeze in the nation’s shadow banking industry, which lends to everyone from street vendors to property tycoons, shows few signs of abating. Investors have fled to safer assets after defaults by firms including Altico Capital India Ltd. and Reliance Capital Ltd. Concerns about governance have also taken a toll, following incidents at companies including Karvy Stock Broking Ltd. and Dewan Housing Finance Corp….Click Here