Money & Banking

ICRA: Negative rating actions in Mar-Dec ’20 exceeded historical 5-year average

Our Bureau Mumbai | Updated on January 27, 2021

Compared to earlier view of 6-8% of borrowers at the system-level looking to get their loans restructured, only a handful of entities in ICRA’s portfolio applied for the same

Rating agency ICRA on Wednesday said negative rating actions undertaken by it in the March to December 2020 period exceeded the historical five-year average.

About 13 per cent of the portfolio experienced a rating downgrade compared to the previous five-year average of 9 per cent, it said. Further, as many as 15 sectors, including aviation, hospitality, residential real estate, retail, and commercial vehicles, have a negative outlook in the near to medium term.

“The credit quality of India Inc has experienced rapid changes since the onset of the Covid-19 pandemic and the imposition of the nationwide lockdown in March 2020. Business health has been bruised in general and some entities in select sectors have been badly hurt, even though the effects have not been apocalyptic, and the worst-case scenarios have not played out,” ICRA said in a statement.

Also read: PSBs may require up to ₹43,000 cr in FY22: ICRA

According to K Ravichandran, Deputy Chief Rating Officer, ICRA, another 9 per cent of the rated entities witnessed a change in outlook — from Stable to Negative or from Positive to Stable.

“Without the various fiscal and monetary interventions which provided a liquidity relief to the borrowers, the negative rating actions could have been higher,” he said, adding that textiles, real estate and construction were the top three sectors in terms of the count of downgrades.

Besides, aviation and hospitality sectors too witnessed a number of negative rating actions.

In terms of upgrades, only 3 per cent of the rated entities were upgraded in the past 10-month period, compared to the previous five-year average of 9 per cent.

The outlook on sectors including ferrous and non-ferrous metals and textiles has been revised from Negative to Stable following the uptrend in prices and expectations of healthy revenue and profit over the medium term, it said, adding that the outlook on cement, passenger vehicles and auto ancillaries has been revised from Negative to Stable.

“ICRA expects the credit quality pressures to remain elevated in general over the near to medium term; however, the intensity is likely to remain quite varied across sectors,” said Ravichandran.

Also read: ICRA Ratings expects pressure on logistics sector in near term

The instances of defaults have been much lower in the past 10 months due to the benefit of the loan moratorium, the agency said, adding that there were only 30 defaults across the rating spectrum compared with 81 in the corresponding previous period.

It also noted that compared to its earlier expectations of about 6-8 per cent of the borrowers at the system-level to get their loans restructured, only a handful of entities in ICRA’s portfolio had applied for loan restructuring.

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Published on January 27, 2021
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