Covid-19: Pressure on India Inc’s credit quality is expected to intensify

Our Bureau | Updated on March 20, 2020

Indian companies have already been struggling to cope with the economic slowdown and consumption slump

Mumbai, March 20

Credit quality pressure on India Inc, which has been rising because of the economic slowdown and consumption slump, is set to intensify with the Covid-19 pandemic, according to credit rating agency Crisil.

The agency, in a report, said the impact will vary with sectors, and will be influenced by the extent of trade disruption, social distancing and the resultant economic slowdown.

Based on the depth and timing of the impact, Crisil has broadly classified sectors witnessing credit quality pressures into three -- those facing significant loss of revenue and profit have been categorised as ‘high risk’, while others are termed ‘moderate’ and ‘low impact’.

The agency has put the services sector, including airlines, hotels, malls, multiplexes, restaurants and retailers, in the high-risk category.

Around 9 per cent of Crisil’s portfolio (of about 900 companies) is in this category.

Crisil said these companies are being closely monitored to understand the impact on credit profiles based on liquidity and near-term debt servicing requirements. Firms facing high near-term risks are more exposed to liquidity stress.

While Covid-19 may not have a direct impact, the agency stressed that the evolving global and domestic economic slowdown will impact demand and realisation in the steel, gems & jewellery, construction & engineering, and textiles sectors

Moderate impact

Sectors facing limited supply disruptions of a couple of quarters, and those with strong balance sheets, would see a moderate impact on credit profiles, the agency said. These include automobiles, auto components, IT, petrochemicals, renewables, consumer durables and electronics.

Low impact

Companies in sectors that are domestically reliant and not exposed to significant demand pressures may not be impacted significantly owing to Covid-19. Some of these are pharmaceuticals, power (other than renewables) and the financial sector.

Crisil’s base case assumes the impact of Covid-19 will be restricted to 1-2 quarters in India. If the pandemic prolongs, more firms are expected to see pressure on their credit profiles.

Published on March 20, 2020

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