Tag: credit ratio

Credit ratio rising to 2.3x in April-August signals improved health of India Inc

Banking & Finance

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Indicating an improvement in corporate health, the credit ratio (upgrades to downgrades) rose to 2.3x in April-August 2021 from 0.56x in the corresponding previous period. The number of upgrades increased 2.4 times in the same period while the downgrades dipped almost 40 per cent, according to Acuité Ratings.

Further, the number of upgrades during the period is similar to that in the pre-Covid year, while the number of downgrades has almost halved from those levels.

Crisil Ratings had also recently revised the credit quality outlook of India Inc for FY 2022 to ‘positive’ from ‘cautiously optimistic’ earlier. A Crisil Ratings study of 43 sectors (accounting for 75 per cent of the ₹36-lakh crore outstanding rated debt, excluding the financial sector) shows the current recovery is broad-based.

Resilient performance

Acuité Ratings said the sharp upsurge in the credit ratio during April-August can be attributed to a resilient performance in FY21 by the manufacturing sector, including debt levels lower than feared early on during the Covid pandemic.

Other factors

“With steady progress in vaccination and gradually declining risks of a third wave, private consumption demand is expected to revive from H2FY22 and ratings have started to factor in such a scenario,” Acuité Ratings said. Other reasons include buoyancy in the export sector since H2FY21 that has largely offset the weak domestic demand. Favourable monsoon conditions and a rich harvest since last year have kept rural demand steady despite a moderate impact of the second wave. And, a recovery in the core infrastructure sectors with the focus on higher investments leading to higher demand scenario in steel, cement and power.

The improving credit ratio in the financial sector reflects a significant moderation in concerns on asset quality deterioration and liquidity impairment, given the monetary and financial support measures.

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Crisil: Credit ratio nears 1 as rating upgrades pick up speed

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Rating agency Crisil, on Monday, said its credit ratio (upgrades to downgrades) has been inching closer to 1 between October and February this fiscal, with a recovery in demand that has led to “guarded optimism” about the credit quality of India Inc.

“These five months saw as many as 244 upgrades compared with 208 for the whole first half,” it said, adding that downgrades continue to be material because the end of moratorium on debt servicing has impacted vulnerable companies.

According to Subodh Rai, Chief Ratings Officer, Crisil Ratings, the improvement in credit ratio was driven by more upgrades in moderately resilient sectors such as construction, engineering and electricity generation, which got support from the relaxation of lockdown, revival in demand and higher commodity prices.

“In comparison, the credit ratio for the first half had fallen to a decadal low of 0.54,” he said.

The agency said the turnaround has been sharper in investment-linked sectors such as construction and engineering, and consumption-linked sectors such as packaging. The credit ratio in these sector has already doubled, compared with the first half, supported by macroeconomic revival.

But in low-resilience sectors such as hotels and resorts, real estate developers and airport operators, downgrades continue to outpace upgrades due to their discretionary nature and leveraged balance sheets.

Akshay Chitgopekar, Director, Crisil Ratings, said: “We maintain a cautiously optimistic outlook on credit quality for the near to medium term, supported by normalisation of economic activity, good agriculture performance and sustained rural demand, and the Budget proposal to infrastructure investments.”

Second wave

He, however, warned of a second wave of pandemic – especially with mutations that undermine the effectiveness of vaccines – leading to containment measures can derail the ongoing recovery.

According to Crisil, other downside risks to the outlook include slower-than-anticipated demand growth, especially for services, continuing job losses, and sub-par implementation of the growth-oriented fiscal measures in the Union Budget.

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