Lenders may see credit quality pain coming from the small and medium enterprises or SMEs in next 12-18 months as the downturn cycle has taken its first toll on these units.
Lenders may see credit quality pain coming from the small and medium enterprises or SMEs in next 12-18 months as the downturn cycle has taken its first toll on these units.
According to a report by India Ratings & Research, 46.3% of the bank loans extended to listed SMEs with revenue size of below Rs 300 crore is in significant stress. At least one out of four such companies may face a challenge in servicing even interest.
"SMEs have been the first casualty of the current cyclical downturn. The revenue growth (median) of small companies has fallen from FY10 and has been in low single digits since FY11," the report said.
SMEs' portfolio majorly includes companies from chemical, textiles, power, real estate, steel and construction sectors. India Ratings has a negative outlook for all these sectors, except a stable outlook for real estate.
Sectors, already under stress, have the highest number of SME corporates with potential issues in servicing even the interest component. The construction sector has the highest number of SMEs (36.5%) with coverage below 1.0x, followed by real estate (33.8%), power (30.6%), textiles (28.5%) and chemicals (20.5%).
Working capital cycle (median) sharply deteriorated for SMEs to 104 days in FY12 from 85-87 days in FY11. Further working capital cycle deterioration may virtually wipe out a large number of SMEs. Thus, large corporates (as represented in BSE 500) were forced to take a hit in their working capital post FY11 as SMEs were in no position to be squeezed further, the rating company said.
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