Credit quality of India Inc gradually recovered in FY17 with credit ratio at 1.22 times (1.29 times in FY16) while debt-weighted credit ratio improved to a five-year high of 0.88 time compared with 0.31 times, according to rating agency Crisil. The improvement was driven by firm commodity prices, stable macros, improving capital structure and lower interest costs.

The debt to income ratio is the percentage of one’s income that goes towards paying debts. Lenders look at this percentage to help them decide whether or not one is a good credit risk. Debt-weighted credit ratio is the total debt on the balance sheets of firms upgraded versus downgraded. There were 1,335 upgrades led by consumption-linked sectors and 1,092 downgrades due to investment-linked sectors.

Going forward, Crisil expects gradual improvement in credit quality to sustain and the impact of demonetisation on the same is expected to be transient. “We expect upgrades to outnumber downgrades in the near term driven by improving domestic consumption demand after demonetisation. Further, several debt-intensive sectors such as metals (especially non-ferrous) and sugar are expected to see improvement in credit quality in fiscal 2018 because of rising prices,” it said.

Fragile sectors However, the underpinning remains fragile as some sectors continue to struggle and several large companies remain highly indebted. Several investment-linked sectors such as real estate and capital goods continue to face headwinds. Stress is also building up in some microfinance institutions. And major corporate houses with high indebtedness will continue to struggle.

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