India Inc’s credit profile improved in the April to September period, compared with the preceding six months, but moderated when compared to the same period last year, domestic rating agency Crisil said Monday. It further said the rupee depreciation, rising interest rates and tariff wars pose a risk for Indian companies in future. India Inc’s credit ratio, which is the number of upgrades to downgrades, stood at 1.68 times in the first half of fiscal year 2018-19, compared with 1.88 times in the first half of the previous fiscal year and 1.45 times in the preceding six months, according to Crisil.
The debt-weighted credit ratio, which is the total quantum of debt upgraded to the one downgraded, stood at 1.20 times for the April to September period, against 1.53 times in the year-ago period and 3.19 times in the preceding six months, it added. However, its smaller rival Icra said its rating actions in the first half point out to an increase in the downward rating pressure on investment grade entities.
“The credit quality pressures on investment grade entities intensified. The just-concluded half of FY19 saw 45 investment grade ratings being downgraded to the on-investment grade at an annualised rate of 4.3 per cent, the highest proportion in the past five years,” said Anjan Ghosh, chief rating officer, Icra.
Sectors that saw an improvement in the credit quality are ferrous metals, micro lenders and fertilisers, while companies in textiles, roads, real estate, automobile dealerships, education and financial services reported a worsening, according to Icra. Crisil’s senior director Somasekhar Vemuri said the rupee depreciation will have a low to moderate impact on India Inc and estimated an impact of up to 1.50 per cent on the net margins of corporates.
On the recent issues at non-bank lenders, it said active liquidity management holds the key and added that while asset quality and capitalisation are “comfortable”, “continued market disruption can constrain access to funding”. Vemuri said non-performing assets in the banking system will come down to 11 per cent by end of FY19, from 11.6 per cent in the year-ago period, and added that they will go down further.
He said a bulk of the recognition has already happened and added that recoveries from the assets being resolved under the bankruptcy laws will also be helpful. From a credit growth perspective, Crisil said banks will clock a double digit growth in FY19, driven majorly by state-run companies. On the crucial issue of private investments, Vemuri said he does not expect those to revive for at least a year as the corporates are waiting for the election results and an uptick in capacity utilisation before investing further.