India has a big debt problem.
A third of the country's 500 largest listed non-financial companies failed to earn enough to make interest payments in the financial year that ended March 2015, according to a new report from local ratings agency India Ratings and Research.
The report, published last week, said in fiscal 2015, 178 out of the largest listed 500 corporate borrowers had an interest coverage ratio below 1. India calculates its fiscal year from April to March; fiscal 2015 ended Mar. 31, 2015, while FY17 began Apr. 1, 2016.
Interest coverage measures a firm's ability to make interest payment on its debt through earnings - the lower the ratio, the less likely the firm is able to make interest payment. India Ratings considers a company stressed if it has an interest coverage ratio below 1.
The 178 companies accounted for 8.1 trillion rupees ($27.1 billion) of the total amount borrowed by the 500 companies, which amounted to 31.3 trillion rupees, the local unit of Fitch Ratings said.
Sectors that experienced declining interest coverage ratio included construction and infrastructure, metals and mining and power. Varun Awtani, an analyst at India Ratings and one of the authors of the report, said factors such as low commodity prices and regulatory delays affected indebted companies in these sectors.