Why is there lower credit stress in India compared to other EMs? Neel Gopalakrishnan explains

economictimes.indiatimes.com:

«There is actually a difference across sectors on why leverage is falling. So if you look at corporates excluding the capital intensive utilities and infrastructure companies what we note is that absolute debt is falling,» says Neel Gopalakrishnan, S&P Global Ratings.You have done a very broad-based research and a report that 91% of Indian companies actually have very decent liquidity position right now, especially at a time when liquidity is an issue globally. How does this stack-up versus historic averages? What does it reflect also?When we say 91% of our rated portfolio has sound liquidity what we mean is that 91% of companies have either an adequate or strong liquidity position under our criteria.

Just for the benefit of audience to explain what these terms mean. The way we measure liquidity is the sources of funds of the company to the projected uses of funds over the next 12 months or 24 months in the case of investment-grade rated companies. If this ratio is above 1.2 we consider it to be adequate and if the ratio is significantly less than 1 we consider it to be weak.

So what we are saying is that. 91% have a ratio above 1.2, which is quite comfortable. And liquidity is an important supporting factor of the strong credit quality of our rated portfolio today because if you look at previous incidents of credit stress this arises more from companies being in a position where they find it difficult to access liquidity.