Corporate Vulnerabilities in India and Banks' Loan Performance

The financial performance of India's corporate sector has been under pressure since theGlobal Financial Crisis. Balance-sheet data on a large cross-section of Indian non-financialcorporates show that the growth in their leverage over the last 15 years has been associatedwith a notable increase in the vulnerabilities of firms carrying high interest payment burdens.Gauged by the debt carried by the most vulnerable component of firms, the Indian corporatesector's vulnerability to severe systemic shocks has increased to levels not seen since 2001.Progress on the macroeconomic front, together with improved credit appraisals and stricterimpairment standards on the bank side, will be critical to help India's banks resume their roleas economic growth drivers.