| | DECEMBER 20168Consultants ReviewAnshul is a Chartered accountant and a Restructuring & turnaround advisor in Transaction advisory practice of EY, specializing in Corporate restructuring and Interim management having experience in sectors like Healthcare, Power, Steel, and Telecom software.Structure of the Indian Debt MarketOf the total INR 88 trillion domestic debt outstanding in the capital market, sovereign debt accounts for INR 64 trillion, while corporate debt accounts for the remaining INR 24 trillion. India Inc.'s debt capital is primarily funded by bank loans (total bank loan to corporates is 2.8 times corporate bonds outstanding as on December 2015). The debt management and regulatory function of both public and corporate debt is done by RBI and SEBI. Growth of Bank Credit and Bad LoansAfter 1990, an array of financial sector reforms were undertaken, including deregulation of interest rates, licensing of new private banks, conversion of development financial institution into banks, and capital infusion by the Government. These reforms resulted in intensified competition, and the bank credit of all scheduled banks began to grow steadily, from less than INR 2 trillion in FY95 to INR 33 trillionin FY10, and more than doubled to INR 73 trillion in FY16. The easy availability of bank credit, coupled with a robust equity market, has been powering the engine of economic growth for well over the past 25 years. Also, gross non-performing assets (GNPAs) consistently fell for a decade and half after the financial reforms, from 15.3 percent in FY95 to 2.3 percent in FY09. However, the slowdown after the global financial crisis of 2008 had its impact on the Indian economy as well, resulting in asset quality distress. As a result, gross NPA started increasing, from 2.5 percent in FY10 to 4.4 percent in FY15. The global economic slowdown, coupled with domestic issues such as excessive leverage, overcapacity, policy logjam and other sectoral-specific issues only aggravated the situation. As corporates began defaulting on interest and repayments, including previously restructured ones, the stressed assets (GNPA + Restructured advances) of banks gradually ballooned to alarming levels, from 5.8 percent in FY11 to 11.5 percent in FY16.IN MY OPINIONBy Anshul Dhanuka, Senior Associate,Ernst & Young LLPCORPORATE DEBT IN INDIA AND THE MANAGEMENT OF BAD LOANS
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