India Ratings today said annual defaults by India Inc reached a decadal high of 4.5 per cent last fiscal, up from 3.5 per cent in the year-ago period, with as many as 32 issuers defaulting on their credit obligations.
“The credit quality of issuers deteriorated due to the slow pace of both domestic as well as global demand growth, the high cost of borrowing and leveraging of the corporate balance sheet,” India Ratings said in a report released here.
The note said the default rate was 3.5 per cent and 32 issuers defaulted in FY13 to push up the rate of default to a decadal high.
The absolute amount which got defaulted is not known and the ratings agency said the default rates are computed on an issuer-basis and not on the amount.
GDP growth had plummeted to a decadal low of 5 per cent during the last fiscal, while the same stood at 6.7 per cent in the earlier fiscal.
The defaults increased even as RBI cut the repo rate, increased its average fund injection to Rs 55,968 crore in FY13 from Rs 51,955 crore in the previous fiscal and cut the cash reserve ratio by 0.75 per cent during the fiscal, it said, acknowledging that the liquidity remained tight in FY13.
The report said the average annual default between FY05 and FY13 was 2.6 per cent.
Overall, the number of downgrades continued to be higher for the second straight fiscal in FY13, even though the ratio of upgrades to downgrades improved to 0.7:1 from 0.5:1, the report said.
In FY13, 9.7 per cent of rated corporate entities were downgraded as against the earlier fiscal’s 12.3 per cent, while 6.6 per cent were upgraded, up from 6 per cent in FY12.
Stating that factors such as policy logjam affected economic growth, it said, there were challenges both on the internal (fiscal deficit) and external front (current account deficit) during the reporting period.
For FY14, the economic environment would continue to remain challenging, it said, adding industrial activity was likely to remain lacklustre even though the good monsoons would prop up agricultural growth.
There are other green-shoots as well such as a pick-up in the US economy and the Eurozone coming out of recession, while the Japanese and Chinese economies are also doing well, the report concluded.