The growing interest rate burden, which is near the pre-pandemic levels and already up 30% over Financial year 2022 levels, will force companies to reverse their deleveraging course this fiscal, according to a report.
The current fiscal is also expected to seea 25 percent increase in interest servicing cost, it added. Top 3,360 plus non-financial, debt-heavy corporates have a debt burden of about Rs 36 lakh crore as of H1 FY20 23 and their interest outflow will jump to Rs 3.38 lakh crore in FY24 from Rs 2.52 lakh crore in FY2022, according to an analysis by India Ratings.
To tame the stubbornly high inflation, the Reserve Bank has hiked the key policy rates by 250 bps so far since May 2022 and at 6.50 per cent it is already 25 bps more than the pre-February 2020 levels. The tailwinds of a lower interest burden owing to a low-interest rate regime and a debt reduction are likely to be reversed in FY24, even without a meaningful increase in leverage, which however, is unlikely to lead to any broad-based credit deterioration, given the headroom available in terms of significant deleveraging and margin growth with most large companies, the agency said on April 11.
The cost of debt is likely to increase across all categories irrespective of the size of the corporate in FY24 compared to FY2022. A sharp rise in interest rates and higher working capital financing are likely to increase interest outflow to Rs 3.38 lakh crore in FY2024 from Rs 2.52 lakh crore in F iscal year 2022, said the report, which is based on the interest costs on a net basis of around 3,365 nonfinancial, debt-heavy corporates with a total debt of about Rs 36 lakh crore as of First half Fiscal 2023.
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