Credit ratings of corporate entities consolidate for upward journey

As the country's economy has come out of the woods, the credit quality of rated corporate entities is consolidating with a bias for improvement.

Going by the rating upgrades and downgrades trend in first three quarters of FY15, the upgrades have surpassed downgrades consistently, though at slow pace.

According to ratings agency CARE, the modified credit ratio (MCR) - the ratio of upgrades plus reaffirmations to downgrades plus reaffirmations -- has been on an upward trajectory for over four quarters.

The rising MCR implies stable and improving credit quality of the rated entities. An MCR closer to one indicates higher stability in ratings, with larger proportion of reaffirmations.

MCR witnessed a significant improvement in the current financial year (in the second and third quarter). It rose to 12-quarter high of 1.25 in the second quarter (September 2014), though it did witness a moderation in the third quarter (Q3 FY15) to 1.23. Yet, it continues to be close to three-year highs, reflective of the continued improvement in the credit quality of the rated entities.

Concurring with a pattern of gradual recovery in credit ratings, Roopa Kudva managing director and chief executive officer of country's largest credit rating agency CRISIL the overall outlook for credit rating in 2015 is positive.

The revenue growth for corporate are expected to be higher and pace of credit downgrades in slowing down.

Bankers concur with overall trend of stability in asset quality but point out to some risks that could emerge from sectors like infrastructure and construction. These sectors continue to face an adverse business environment, bankers added.