Sales, ability to repay debt fell in Q1: RBI1 min read . Updated: 21 Oct 2020, 06:36 AM IST
- Aggregate sales of 1,619 manufacturing firms saw a sharp contraction of 41.1% in the June quarter from a year earlier
Sales and debt servicing capacity of Indian companies slipped in the June quarter as covid spread across the country, central bank data released on Tuesday showed.
Aggregate sales of 1,619 manufacturing firms saw a sharp contraction of 41.1% in the June quarter from a year earlier. That compares with a 15.6% decline in the preceding three months. The contraction, the Reserve Bank of India said, was broad-based with only pharmaceutical companies recording higher sales on both year-on-year and sequential basis.
Non-information technology services firms also registered a sharp contraction from 41% a year ago in their nominal sales. Sales growth of IT sector companies remained in positive terrain but moderated to 3.2% in the June quarter.
The combined effect of covid and the lockdown has undoubtedly had a severe impact on the Indian economy, which was already slowing down before covid struck. The economy shrank 23.9% in the June quarter, the worst in four decades. RBI now expects real GDP to contract 9.5% for the full year, with a mild recovery in the fiscal fourth quarter.
RBI also pointed out on Tuesday that with a moderation in earnings, the interest coverage ratio (ICR) of manufacturing firms moderated further to 2.4 in the quarter to June from 3.5 in the previous quarter. ICR is the ratio of a company’s earnings before interest and tax to interest expenses and is a measure of the debt-servicing capacity. The downward trend, visible even before covid hit, signals reduced margin of safety for these firms against a backdrop of weak sales and profit growth.
The jury is still out on whether the lockdown had any significant impact on curtailing the spread of covid with confirmed cases now at 7.5 million. Millions have been rendered jobless, curtailing their spending capacity and ability to repay debt. RBI had to step in and allow, first a six-month moratorium on loan repayments and then a window for debt recast, permitting easier repayment terms.
The monetary policy committee statement said on 9 October that while covid-related supply disruptions may continue to impose cost-push pressures, these risks are getting mitigated by the progressive easing of lockdowns and removal of curbs on inter-state movements.
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