India Inc's credit ratio nears 1 as rating upgrades pick up speed: CRISIL

Near-term outlook cautiously optimistic, says the ratings agency

A sprightly recovery in demand has spawned guarded optimism about the credit quality of India Inc. This has led to credit ratio (upgrades to downgrades) inching closer to 1 (one) between October and February this fiscal, according to CRISIL.

These five months saw as many as 244 upgrades compared with 208 for the whole first half. 

Subodh Rai, Chief Ratings Officer, CRISIL Ratings, said the improvement in the credit ratio was driven by more upgrades in moderately resilient sectors such as construction, engineering and electricity generation. That got support from the relaxation of lockdown, revival in demand and higher commodity prices. In comparison, the credit ratio for the first half had fallen to a decadal low of 0.54.

Notably, despite the acute stress faced, the past 11 months saw 55 per cent fewer downgrades to default, year-on-year. That’s primarily due to emergency regulatory and policy support such as loan moratorium, relaxation in default recognition up to December 2020. The one-time restructuring relief and emergency credit line guarantee scheme also added to support.

The extent of increase in stress among companies and, in turn, for banks and non-banks, will be the monitorable in the road ahead, even as improving demand provides offset. Highly resilient sectors such as pharmaceuticals and agrochemicals performed well owing to sustained demand, it said.

The credit ratio for these sectors remained above 1 ( one) even during the bleakest period of the pandemic. The turnaround has been sharper in investment-linked sectors such as construction and engineering, and consumption-linked sectors such as packaging. The credit ratio has already doubled compared with the first half, supported by macroeconomic revival.

However, in low-resilience sectors such as hotels and resorts, real estate developers and airport operators, downgrades continue to outpace upgrades owing to their discretionary nature and leveraged balance sheets, the ratings agency added.