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With the national lockdown and coronavirus pandemic triggering a widespread deterioration in the credit quality of India Inc, ICRA Ratings on Tuesday noted that sectors like aviation, retail, shipping, micro finance institutions and tourism, hotels and restaurants are high risk and will be more impacted by the current disruption.
“The high risk sectors (aviation, gems and jewellery, tourism and hotels, microfinance institutions) are the ones that face severe business disruption over the immediate term and where the recovery is more likely to be prolonged,” ICRA said.
Risk assessment
The rating agency is reviewing its portfolio of ratings by following an approach that involves risk assessment both at the sector level as well as the entity level.
For the sector level review, it has created a heat map marking out the high risk, medium risk and low risk sectors, with focus of analysis on the first two. Entity-level risk mapping involves risk categorization in terms of most vulnerable, moderately vulnerable and relatively less vulnerable entities; here too, the review of the first two categories is being prioritized.
It has categorised automobile OEMS and auto-ancillaries, construction, consumer durables and power as medium risk sectors and said they face relatively lower degree of business disruptions and credit risks. “Further, the after effects of Covid-19 crisis on these sectors may not persist for long,” it said.
The low risk sectors like agri-products, education, FMCG, telecom are unlikely to face material business disruption, or a material increase in credit risks over the near term, triggered solely by the Covid-19 crisis, it further noted.
“Subsequent to our 2019-20 ratings action, the current Covid-19 pandemic triggered crisis has led to a widespread deterioration in the credit quality of India Inc. The credit challenges are overwhelming and would impact the credit profiles of a large number of entities across sectors in an unprecedented manner,” Jitin Makkar, Head Credit Policy, ICRA told reporters during a media call.
ICRA noted that due to the economic slowdown last fiscal, rating downgrades significantly increased, both in terms of number as well as severity.
The ratings of 584 entities were downgraded in 2019-20 reflecting a downgrade rate of 16 per cent, it said, adding that this was significantly higher than the past five-year average of 9 per cent.
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