A steep rise in debt levels of large business houses like Lanco, Adani, GVK, Vedanta and GMR groups in the past five years has led to a much higher ’borrower concentration risk’ at Indian banks, as compared to their other Asian and emerging market peers.
Infrastructure major Lanco group has witnessed the steepest rise in its debt level in the past five years, followed by Adani, GVK group, Vedanta and GMR, as per an analysis of debt levels of top 10 corporate groups in the country by global financial services giant Credit Suisse.
While Lanco’s group debt has grown at an annual rate of 76 per cent in the past five financial years, the rise has been 74 per cent for Adani, 65 per cent for GVK, 58 per cent for Vedanta and 55 per cent for GMR group.
The combined debt of the top 10 groups grew over five times in last five years, from Rs 99,300 crore to Rs 5,39,500 crore, at a compounded annual growth rate of 40 per cent.
In comparison, the total banking system loans grew by just 20 per cent annually during this period.
Among others in the top-ten groups, Jaypee group’s debt has grown at an annual rate of 41 per cent, Videocon’s by 34 per cent, Essar group’s by 31 per cent, Anil Ambani-led Reliance group’s by 27 per cent and JSW group’s by 25 per cent during this period, Credit Suisse said.
In terms of total debt for FY12, Essar group tops the list with Rs 93,800 crore, followed by Vedanta (Rs 93,500 crore), Reliance (Rs 86,700 crore), Adani (Rs 69,500 crore), Jaypee (Rs 45,400 crore), JSW (Rs 40,200 crore), GMR (Rs 32,900 crore), Lanco (Rs 29,300 crore), Videocon (Rs 27,300 crore) and GVK (Rs 21,000 crore).
Credit Suisse said that the aggregate debt of these ten groups accounts for about 13 per cent of total bank loans and a whopping 98 per cent of the entire banking system net worth.
“Therefore, surprisingly now in terms of concentration risk, Indian banks rank higher than most of their Asian and BRIC counterparts,” it added.
The report said a strong loan growth of Indian banking system in past five years is increasingly being driven by a select few corporate groups.
“Given the high leverage, poor profitability and pressure from lenders most of these debt heavy groups have initiated plans to divest some of their assets. However, given that most domestic infrastructure developers are already over-geared, demand for these assets may be limited,” Credit Suisse said.
Each of these groups alone account for 1-2 per cent of total banking system loans, the report said, while noting that all banks appear to have high exposure to the same few groups.
“With the economic slowdown and a downturn in these sectors, multiple assets of each group appear stressed and financials of these groups are stretched,” the report said.