India Inc creditworthiness down: Crisil

Pressure on credit quality of Indian corporates is on the rise suggesting a decline in creditworthiness, according to a study by rating agency Crisil.

The ratio of rating upgrades to downgrades declined to 1.00 in the first half of 2006-07, from 1.03 in 2005-06, Crisil said in its study on rating actions, adding the decline in the ratio is in line with expectations of a downward trend in creditworthiness.

"This is for the first time since Crisil started assigning outlooks,in 2003 , the number of entities with negative outlooks exceeds the number of entities with positive outlooks," said Roopa Kudva, chief rating officer, Crisil. "This leads us to expect an overall weakening of fundamentals," she added.

Crisil said given that the rating actions are forward looking in nature and comprehensively cover key sectors of the economy, the ratio of upgrades to downgrades stands out as a reliable indicator of the credit outlook for manufacturing, financial and infrastructure sectors.

For the first time in four years, the ratio of rating upgrades to downgrades for the manufacturing sector fell below 1 to 0.98. "Going forward, increased input prices, high capital expenditure, and higher interest rates are likely to accentuate the credit quality pressures on the manufacturing sector," said G V Mani, director, rating criteria, CRISIL.

"However, the impact of the pressures will be somewhat muted keeping in view strong credit profile of corporate India," Mani said.

The modified credit ratio (MCR) values for the infrastructure and financial sectors are expected to remain stable over the short to medium term, Crisil said. MCR is the ratio of upgrades plus reaffirmations to downgrades plus reaffirmations.