46 per cent of SMEs under credit stress, may default: India Ratings

Nearly half of bank loans extended to listed small businesses, having a revenue of under Rs 300 crore, are under stress and there is a little possibility of improvement in the near future as their revenue growths will remain under pressure, according to a report.

"As much as 46.3 per cent of bank loans extended to listed small and medium companies (SMEs) are in significant stress ... at least one out of four such companies may face a challenge in servicing even  interest," India Ratings said in a note.

Stating that SMEs are the "first casualty" in the downturn, the report said their revenue growth slipped into the single-digit since FY11, while the same happened for large corporates only from FY13.

The agency warned that the median revenue of SMEs is unlikely to improve in the next 12-18 months.

The report said smaller companies have a lower bargaining power as compared to the bigger ones, and pointed at the gap of 10-12 per cent in the pre-tax margins between the two groups.

The India Ratings report said a reduction in the working capital days of large corporates was essential for conditions at SMEs to improve.

"Unless working capital cycle of large corporates come down significantly to below 50, while the same for SMEs is unlikely to improve. It would require the economic activity to reach the level last observed in FY11-FY12. This is unlikely to happen in the next 12 to 18 months," it said.

The agency said it is keeping a negative outlook for SMEs in the chemical, textiles, power, steel and construction sectors, while real estate has a stable outlook, it said.