Indian companies to see higher interest burden in FY24 against FY22: Report

The rating agency also expects the cost of debt to increase across different categories irrespective of the size of the firms. The move is in sync with the interest rate regime. 

A rise in interest rates and higher working capital financing is likely to increase outflows of interest to Rs 3.38 trillion in FY24 from Rs 2.52 trillion in FY22, the rating agency mentioned. However, it does not expect this to lead to a broad-based credit decline.

Ind-Ra also analysed interest costs on basis of 3,365 non-financial, debt-heavy companies with a total debt of nearly Rs 36 trillion in the first half of FY23. These companies have been segregated into six different segments on the basis of long-term and short-term debt amounts. 

The rating agency commented on the interest cost and said, “Interest costs for all sectors will increase at a compounded annual growth rate of 16 per cent between FY22 and FY24. “For the top debt-heavy sectors, interest costs will rise to Rs 2.84 trillion in FY24 from Rs 2.09 trillion in FY22.”

On deducing interest rates for the current financial year, the rating agency factored a 25 per cent jump in financing cost in FY24 as compared to FY22. 

Interest rate transmission for large companies gained attention in the latter half of FY23 when the Reserve Bank of India was hiking the repo rate due to the sharp decline in the banking system’s liquidity. The transmission of monetary policy in the banking system could intensify in FY24 and will be driven by a sharp rise in the banks’ marginal cost of funding-based lending rates, the rating agency said.