When 2019-20 began it was laced with optimism as it was expected that the economy willrecover and be on the path of higher growth. The two sets of issues associated with SMEsbeing put on a firmer footing and the NBFC crisis which began in 2018 appeared to be undercontrol. The government and RBI had taken various measures to steady the financial sectorinvolving channeling of credit to these vulnerable sectors. Therefore the preconditionsrequired to be for further growth seemed to be in place.
However for CARE Ratings business prospects within the traditional credit ratingbusiness depends on how both the credit and debt market perform. Here we did see that theemerging picture was not positive. I would like to mention here that credit ratingbusiness depends on the overall size of the rateable universe increasing once it reaches astage of maturity where almost all existing paper is rated. GDP growth was just 4.2% withindustrial growth being negative 0.7%. While overall growth in bank credit was 6.1% (13.3%last year) the two segments which matter for our business i.e. industry and servicesregistered much lower growth rates of 0.7% (6.9%) and 7.4% (17.8%) respectively.Therefore the banking universe was much smaller than last year in incremental terms asbanks shied from lending even while demand for funds was low given the surplus capacity inmanufacturing. Further the NPA levels tended to be still in the region of 9.5% which madebanks cautious especially while lending for projects. Our initial rating business thus gotaffected.
The other segment namely capital market issuances of corporate debt witnessed higherissuances of Rs 6.9 lkh crore as against Rs 6.5 lkh crore. The financial and infra sectorsaccounted for 85% of issuances and was not quite well spread across all sectors. Thedominance of PSUs was also noticeable here. Given the fee structure earnings on largerborrowings are not commensurate with volume debt rated. Therefore we had to rely more onsurveillance income this year and overall performance did reflect the same.
This can be a new trend in the coming years. We do realize that credit rating businessis going to be volatile and uncertain as the exponential growth one expects in the macronumbers of the economy cannot be taken for granted. Similarly regulatory changes nowdictate that credit rating agencies can do only credit rating business and nothing else.All this means that with changing times we need to adapt with alacrity to the uncertainenvironment to generate incremental shareholder value. Therefore we will also beconcentrating on other related businesses which are established in our two domesticsubsidiaries CART and CRSPL and two overseas credit rating subsidiaries in Africa andNepal. Just like how the conventional banking business faces barriers in terms of growthof credit and deposits and hence resorts to other avenues of income streams likecross-selling of fee based products so too have credit rating agencies to innovate andbuild client related advisory research and analytics businesses. CARE has traditionallyonly focused on ratings business; hence the diversification needs for CARE Ratings arethat much stronger.
I do see a lot of potential in business opportunity in the areas of structuredproducts securitization and impaired assets resolution and would be focusing ourdiversification plans in this direction. Also in our business which is knowledgeintensive having top-class human resources is imperative. To leverage this reservoir oftalent which we have the company will be using more of technology to drive processes inthe coming years and the use of AI will be one of the guiding blocks.
We have recognized the requirement of having best in class market intelligence to pickup news of potential disruption in activities of clients which can affect the rating. Ourbusiness is about prognosis and to hit the bull's eye we need to be market savvy andstreet smart. This is what we have learnt from the NBFC crisis and are already working onbuilding this ML system whereby we are able to detect problems in advance.
Hence we will be focusing on both more aggressive diversification through oursubsidiaries and more robust ratings processes involving AI and ML. This we believe willbring about sustainable growth in the balance sheet of CARE Ratings Group in future aswell as enhance the accuracy of our ratings. I do hence look upon the developments in thelast two years in terms of lower growth and the credit ratings disruptions in the NBFCsector positively as wake-up calls which have forced us to think differently.
I am confident that the past will be behind and your company will emerge stronger andcontinue to add shareholder value in future.