The Covid-19 pandemic has dominated every aspect of human and business life in 2020. While the full extent and scale of its impact on corporate India is yet to be fully assessed, the Indian economy was expected to face stresses even before the pandemic hit. The Gross Domestic Product in India had fallen to an 11 year low of 4.2% in F.Y 2019-2020. The economy grew by 3.1% in the January-March quarter of F.Y 2019-2020 against 5.7% the same time a year ago, the slowest pace in the last eight years. Covid-19 is likely to depress these figures even further.

There are two key indicators from a business perspective that will require a close watch. First is the stress in the financial sector. Second is the size and volume of deal activity.

The resolution of the stress in the financial sector will eventually boil down to how well India’s intuitional lenders such as banks and non-banking financial companies are able to tackle their burgeoning exposures to non-performing assets (“NPAs”). This is not a new battle and many efforts have been made in the past two decades. The introduction of the Insolvency and Bankruptcy Code, 2016 (“IBC”) was viewed as a structural shift in the resolution of NPAs in India. However, Covid-19 is expected to result in a surge in NPAs in the coming few months. Rating agency CRISIL has estimated that bad loans will rise to 11-11.5% by March 2021 from the 9.5% expected for FY20.

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