Credit worthiness of India Inc still a concern: Crisil

First half of the year sees sharp rise in number of defaulters.

The credit worthiness of the corporate sector remains a concern but growing availability of loans, both in domestic and international markets, is bringing down cost of funds and increasing profitability, Credit rating agency Crisil has said.

The strains, it said, were still visible from the fact that the rating major downgraded as many as 90 Indian companies in the first four months of the current financial year, six more than the number of downgrades in entire 2008-09.

However, the number of companies rated by the agency had also nearly doubled over the last one year to around 2,800, said Raman Oberoi, senior director, Crisil Ratings.

The number of defaults has also increased and 14 companies rated by Crisil defaulted during April-July as compared with 12 in the second half of the previous fiscal. The defaults are mostly in textiles and real estate related sectors. Crisil says defaults are likely to continue as many companies which are on the “edge” may fall on the wrong side, according to Oberoi.

However, non-banking finance companies (NBFCs) have not seen many downgrades. While 12 NBFCs were downgraded in 2008-09, one was downgraded in the first four months of 2009-10.

Though the pressure on credit quality continued, its intensity had abated, said Crisil.

The rating major sees corporate profitability increasing in the past two quarters due to improved access to funds at reasonable rates. As a result, 13 companies were upgraded during April-July as compared with just two upgrades in 2008-09.

“Indian banks are willing to lend now and the risk appetite (of lenders) has returned in the international market,” said Oberoi. Declining interest rate burden and surge in commodity prices in the last six months had helped the profitability of Indian companies, he added.

The interest rate environment would remain benign as the Reserve Bank of India (RBI) was likely to continue its neutral stance, said DK Joshi, principle economist of Crisil.

“The RBI is in a neutral zone. Though it has raised the inflation forecast, there is no major upturn in credit offtake. RBI may start tightening monetary policy towards the end of the current financial year when economic recovery starts and inflation start rising,”Joshi said.

He also said Crisil would take a call on revising the country's growth forecast in the first week of September after looking at data on rainfall till August.

“Agriculture growth is definitely going to be negative but we have to see how much,” he said. Crisil projects GDP growth of 6-6.5 per cent for the current financial year.

RBI sees economy growing at upward of 6 per cent for the current financial year while the government expects 6.5 per cent GDP growth.