With the coronavirus pandemic impacting economic growth, rating agency Crisil on Thursday said the credit ratio for Indian companies fell to an an over three-year low for the second-half of 2019-20 and gave a “negative” outlook for the current fiscal.

“In fiscal 2021, downgrades will continue to outnumber upgrades driven by economic impact of the Covid-19 pandemic,” it said, adding that over the near to medium term credit quality trends would be driven by the ability of companies to rebound from the near-standstill demand situation.

In the second-half of FY20, there were 469 rating downgrades as against 360 upgrades.

Credit ratio, or the number of companies upgraded to those downgraded, weakened to 0.77 in the second-half of the fiscal from 1.21 in the first-half.

From a quantum of loans perspective, the debt-rated credit ratio rose to 1.24 from 0.25 in the preceding six months.

“Credit quality outlook in 2020-21 is weak, with economic recovery expected to be gradual and from the latter half of the fiscal,” said Somasekhar Vemuri, Senior Director, CRISIL Ratings, in a media call.

However, the duration, spread and intensity of the pandemic will continue to materially impact the credit outlook for FY21, with rating downgrades likely to far outnumber upgrades.

Resilience levels

According to the Crisil study of 35 sectors with an outstanding debt of ₹23 lakh crore, nearly 44 per cent of debt is in sectors which are expected to be in high resilience category.

These include pharmaceuticals, fertiliser, oil refineries, power and gas distribution and transmission, telecom and fast-moving consumer goods.

Nearly 52 per cent of debt is in sectors expected to be in moderately resilient category, such as automobile manufacturers, power generators, roads and construction.

“While these sectors have moderate-to-high disruption due to the lockdown, key mitigating factors, which partially cushion the impact, include the presence of strong balance sheets or liquidity, or relatively faster demand recovery,” it said.

Around four per cent of debt is in sectors that are least resilient, such as airlines, gems and jewellery, auto dealers and real estate, given the discretionary nature of goods and services, and weak balance sheets.

GDP forecast

In the financial services segment, the lockdown restrictions will have a near-term impact on both collections and fresh loan disbursements, it further warned.

Crisil has already slashed its base-case GDP growth forecast for the new fiscal year to 3.5 per cent.

Vemuri said that the base case scenario is that the disruptions due to the national lockdown will be restricted to the first quarter of the fiscal and if there is a second wave later, some of the conclusions will be reworked.

Gurpreet Chhatwal, President, Crisil Ratings, said that after the first quarter, the agency has factored in anywhere between nine and 12 months for various sectors to resume normalcy.

“Strong balance sheets or continuing demand will support some sectors during the current lockdown. However, some other sectors could be hampered by collapsing discretionary demand or high leverage,” he said.

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