New Delhi [India], October 18 : Financially weak companies that have been unable to generate enough earnings to cover their interest payments account for 21.4 per cent of outstanding corporate debt across 10 major Asian economies, including India, according to the International Monetary Fund (IMF).
The findings, highlighted in the IMF's October 2026 Global Financial Stability Report titled "Resilience, Risk, and Transformation", point to growing risks for banks and the wider financial system as lending to financially distressed companies continues despite their inability to service debt.
In a special analysis titled "Corporate Zombies Are Thwarting Debt Deleveraging", the IMF stated, "This rising share of corporate debt is increasingly concentrated in firms that cannot service it."
The report noted that such companies, commonly referred to as "zombie firms", are businesses whose earnings have failed to cover interest expenses for at least three consecutive years.
"Across 10 Asian economies, zombie firms—those for which earnings have not covered interest expenses for at least three consecutive years—now account for 21.4 percent of corporate debt outstanding in the region, having increased from under 10 percent in 2008," the IMF stated.
The analysis covers China, Hong Kong, India, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand. The 21.4 per cent figure represents the combined assessment of these economies and is not specific to India.
The IMF warned that continued lending to financially weak businesses could create problems for banks, particularly those with weaker capital positions.
"Bank forbearance therefore locks in both weak borrowers and weak banks," the report said.
According to the analysis, banks with capital levels below the median of their respective countries have 16 per cent of their loans exposed to zombie firms, compared with 12 per cent for better-capitalised banks.
The IMF also highlighted that corporate borrowing remains elevated across Asia. At the end of 2025, credit to non-financial companies in Asia averaged 107 per cent of GDP, compared with 99 per cent for emerging markets and 93 per cent globally.
The report further estimated that nearly 23 per cent of debt held by zombie companies across the 10 Asian economies could have been written off or restructured by 2025 under assumptions typically applied to companies facing sustained financial distress.
"This amounts to more than 5 percent of total corporate debt and is likely a source of future earnings and balance sheet weakness for the banks involved," the IMF warned.
The findings highlight the risk that continued lending to businesses unable to service their debt could delay the recognition of bad loans, weaken bank balance sheets and complicate efforts to reduce corporate debt across the region.