Credit quality stable but recovery will be slow, says Crisil

After facing tough times as a fallout of the economic slowdown, Indian companies now have to bother less about credit quality due to improvement in business environment and easier access to funds.

Indian firms’ credit quality is beginning to stabilise after being in a free fall for 2008-09, according to a study by rating agency Crisil. Crisil’s Modified Credit Ratio (MCR) has increased to 0.88 for the first half of 2009-10, after dropping to a nine-year low of 0.86 in 2008-09.

Companies have easier access to funds as a result of the government’s fiscal and monetary easing and positive stock market conditions. In addition, lower commodity prices have led to lower working capital needs, it has said.

However, a recovery in credit quality would at best be gradual and might not necessarily be smooth, it said.

Raman Uberoi, senior director, Crisil, said, “There are signs that both monetary and fiscal easing and the lower commodity prices are temporary. Additionally, unlike in the late 1990s, we see no prospect of a sudden and sustained upturn in economic conditions to lift corporate performance. We can, therefore, rule out a sudden jump in MCR of the kind we saw in 1999-2000, when MCR rose to 0.92 from 0.61.” In the first half of 2009-10, about 5.9 per cent of the average outstanding ratings were downgraded. This compares with a figure of 7.1 per cent in the immediately preceding six months.