The COVID-19 pandemic will result in Rs 1.67 lakh crore of debt owed by top-500 corporates turning delinquent by March 2022, a report said on Monday.

This will take the cumulative quantum of delinquencies to Rs 4.21 lakh crore or about 11 per cent of overall debt, India Ratings and Research said in its report.

Concerns over banks' asset quality have been repeatedly expressed since the onset of the pandemic earlier this year. The RBI has allowed a six-month moratorium on loan repayments ending August, which has resulted in the stress not being recognised. The government has announced a nearly Rs 21 lakh crore stimulus package to restrict the economic impact of the pandemic.

The rating agency said the pandemic and the "associated policy response" will result in the additional loan stress of Rs 1.67 lakh crore from the top 500 debt-heavy private sector borrowers getting delinquent.

It said before the onset of the pandemic, it had estimated debt of Rs 2.54 lakh crore to turn delinquent till FY'22 and the addition of the Rs 1.67 lakh crore will take the overall delinquency to Rs 4.21 lakh crore.

This will constitute 18.21 per cent of the corporate sector's debt, which is higher than the 11.57 per cent of debt currently considered as stressed, the agency said.

After estimating the slippages, incremental stress and loss given default, the agency said the credit costs which majorly include loan loss provisioning to be set aside by lenders will come at 3.57 per cent of the system debt.

However, in a scenario where funding markets continue to exhibit heightened risk aversion, an extra Rs 1.68 lakh crore of corporate debt would fall into the stressed category, resulting in Rs 5.89 lakh crore of corporate debt turning stressed by FY22 and leave a 4.82 per cent hole as credit costs, it said.

The agency warned refinancing pressures will persist and securing timely funding could continue to prove challenging for the private companies.

It expects Rs 4.81 lakh crore of fresh credit demand by the top 500 debt-heavy private sector corporates to emanate from a mix of receivable financing and a further drawdown of unutilised bank limits to shore up liquidity, meet cash flow shortfalls and to fund various isolated pockets of capex spending largely restricted to maintenance capex.

Lenders will prefer shorter tenure loans and will be more selective, which will weaken the resource mobilisation ability of lower rated issuers in the investment grade, it said.