Zombie firms absorbed 10% of total bank credit

Zombie firms, or perpetually loss-making organizations, absorbed around 10% of the complete bank credit extended out to all organizations in the Indian economy, the Reserve Bank of India (RBI) said in its monthly bulletin on February 16.

Likewise, such firms are assessed to represent around 10% of the total debt of the non-financial corporate sector, the release said. The RBI publishes the bulletin every month capturing trends in the economy and the financial sector.

As a general rule, these organizations are viewed as highly leveraged, create a negative return on assets over successive years, and get more to endure as opposed to undertaking new investment, the release said.

“Their average costs of funds are more sensitive to monetary policy shocks. Their borrowings from banks, be that as it may, often do not give rise to the higher real investment activity, unlike non-zombies,” the RBI Bulletin stated.

The comments in the bulletin are significant considering the huge bad loan issue faced by Indian banks, mostly the state-run banks. Indian banks were forced to clean up their balance sheets in 2015 when the RBI initiated an asset quality review.