Hidden from the public eye, unlisted Indian companies are grappling with a substantial debt load, far surpassing their listed counterparts, as highlighted by a recent analysis from Motilal Oswal Financial Services Ltd. While overall corporate debt in India has steadily risen, the unlisted sector has emerged as the major contributor to this surge.
The study indicates that listed companies constitute only 25% of India’s total corporate debt. This implies that the unlisted realm, known for its lower transparency, is lugging around a staggering three times more debt compared to publicly-traded entities. This revelation unveils a concealed vulnerability in the Indian economy, posing concerns about potential financial instability if not addressed.
Numerous factors contribute to this trend. Unlisted firms often face challenges in accessing equity financing, leading them to rely more heavily on debt to fuel their expansion. Furthermore, the absence of stringent regulations and public scrutiny in the unlisted domain may result in more lenient lending practices and riskier borrowing decisions.
This heightened debt burden carries implications for both the companies involved and the broader Indian economy. Firms with significant leverage are more vulnerable to economic downturns and interest rate hikes, escalating the risk of defaults and bankruptcies. This, in turn, could have a cascading effect, impacting banks and financial institutions entwined with such debt.
Motilal Oswal’s analysis also reveals an alarming trend: the debt burden of unlisted companies has increased at a faster pace than that of listed companies in the post-pandemic period. This suggests an amplification of risks associated with the unlisted sector, necessitating closer monitoring and potentially more stringent regulations.
Understanding the dynamics of debt in unlisted Indian companies is paramount for maintaining a robust and stable financial ecosystem. Initiatives such as enhanced transparency, improved risk management practices, and appropriate regulatory frameworks are crucial steps toward mitigating potential vulnerabilities and ensuring sustainable growth across all sectors of the Indian economy.
