Ratings agency CRISIL has lowered its estimate for growth in India's gross domestic product (GDP) for 2013-14 to 5.5 per cent from its previous estimate of six per cent.
The industry and services sector are expected to grow at a lower rate of 3.5 per cent and 6.9 per cent, respectively. The forecast for agricultural GDP growth is, however, unchanged at 3.5 per cent, CRISIL said.
The agency added the Reserve Bank of India (RBI)'s steps to tighten liquidity would adversely impact car, truck and home sales. It would also reduce volume growth for steel and cement companies, according to CRISIL data.
The steps, which would push lending rates up, might badly hit the debt repayment capacity of companies, which are already facing adverse economic and business climates.
This would raise the incidence of defaults and increase non-performing assets of banks to four per cent by March 2014, up from 3.3 per cent in March this year.
The agency expects refinancing to be a challenge for companies due to tighter cash conditions, which could prompt more rating downgrades than upgrades in the near term.
"The liquidity squeeze has changed our outlook on change in the rating cycle. The companies would face refinancing or rollover challenges due to tight cash conditions," said Rope Kudva, managing director and chief executive, CRISIL.
The rating downgrades would continue to exceed upgrades in FY 2013-14. We were expecting the cycle to turn for the better (more upgrades than downgrades) in the current financial year," she said.
Liquidity tightening steps would push up the borrowing costs for commercial banks. Hence now, there is little possibility of easing of lending rates during this year.
The interest sensitive sectors would take a knock. The car sales might shrink by two-three per cent. The demand for heavy and medium commercial vehicles would decline by one-three per cent. The new home sales growth would be three per cent down from the earlier estimate of three per cent, the agency said.