The overall credit quality of Indian companies, especially that of firms with lower debt on books, appears to be improving, according to a study by ratings agency Crisil.

During the first six months of the current financial year, the ratio of ratings upgrades to downgrades was 1.64.

Higher upgrades, which shows improving credit quality, were witnessed in export-linked sectors and non-discretionary consumer segments such as packaged foods, pharmaceuticals, textiles and agricultural products. Companies operating in the construction, engineering and capital goods and auto ancillary sectors had higher downgrade rates.

“Upgrades exceeded downgrades in the first half of 2014-15, with 741 upgrades compared to 451 downgrades. Firms with low debt exposure primarily witnessed positive trends in credit quality,” Crisil said in a statement.

In the second half of the previous fiscal(2013-14), the ratio of upgrades to downgrades stood at 0.76. In other words, the number of upgrades were 536 compared with 708 downgrades.

Worries persist However, the latest performance does not mean that corporate India has turned the corner. “Corporate India is still not out of the woods,” said Pawan Agrawal, Senior Director, Crisil Ratings, over a conference call. A look at the quantum of credit upgraded versus that downgraded gives a clearer picture.

According to Agrawal, the ratings agency upgraded debt worth ₹39,000 crore during the first half of the current financial year. At the same time, it downgraded debt worth ₹65,000 crore during the same period.

This means companies with lower debt on their books are turning around faster than companies which have borrowed more.

Vijayalakshmi Iyer, Chairperson of Bank of India, agrees. “While the markets have turned, the economy is yet to turn around. So, the stress in the banking system continues.”

Crisil has warned that the improvement in credit quality will be gradual and any significant recovery will be contingent on a sustainable increase in investment demand, and the extent of policy reforms by the Government will be the key.

Added Iyer: “We are hoping that the economy will pick up early next year. The Government has taken some small steps that should give way to better recoveries.”

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