Weak economic growth drags credit health of Indian firms to 8-year low

The creditworthiness of Indian companies has deteriorated to the lowest in eight years as the economy slows, and there are signs their financial health will worsen further.

The quickening ratio of downgrades versus upgrades suggests that relief from the credit crisis may be hard to find. The liquidity crunch has crimped lending and hobbled plans to improve infrastructure in Asia’s third-largest economy.

With the fallout from the deadly coronavirus likely to hurt global expansion, it will be harder for India to kick-start economic growth.

The credit scores of 188 Indian borrowers were lowered in the nine months through December, compared with 103 upgrades, according to data from India Ratings & Research, the local affiliate of Fitch Ratings. It is the worst ratio since the financial year ended March 2012. “Pressure on corporate credits will persist for at least the next two to three quarters,” said Rakesh Valecha, senior director at Mumbai-based India Ratings, noting that the number of companies with a negative outlook or on rating watch negative increased to 13 per cent at the end of December, from 6 per cent in March.

About ₹1.53-lakh crore of debt was cut, three times as much as the amount upgraded. The number of downgrades versus upgrades also increased on a quarterly basis, rising as high as 2.75 in the three months to December as economic growth worsened, according to India Ratings.

While Narendra Modi’s government has taken a number of steps in recent months to spur expansion, it has fallen short of reviving the consumption-driven economy. India has gone from being the world’s fastest-growing major nation three years ago, expanding at 8 per cent, to posting its weakest performance in more than a decade this fiscal year.

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