Money & Banking

No let up in pressure on credit quality of domestic companies

Our Bureau Mumbai | Updated on October 02, 2019 Published on October 02, 2019

Crisil, ICRA say huge rise in volume of debt downgraded in H1 FY20

Ratings of India Inc saw a sharp downgrade in the first half of 2019-20, with analysts highlighting rise in pressure on the credit quality of domestic firms.

Rating agency Crisil, on Tuesday, said that as much as ₹1.38-lakh crore of debt has been downgraded in the first six months of the current fiscal, making it the highest since the first half of 2015-16. “The value of debt downgraded more than trebled to ₹1.38-lakh crore in the first half of fiscal 2020, from ₹39,000 crore in the first half of fiscal 2019. That’s the highest for any half since fiscal 2016,” it said in its ratings round-up for the first half of 2019-20.

ICRA said it downgraded ₹5.2-lakh crore of debt in the first half of the fiscal, against ₹3.2-lakh crore in the whole of 2018-19. “ICRA downgraded the ratings of 266 entities, reflecting a downgrade rate of 14.6 per cent (annualised), which was significantly higher than the past five-year average of 8.8 per cent,” it said in its round-up for the first half of the fiscal, adding that the instances of upgrades, at 170, witnessed a decline, as did the upgrade rate of 9.4 per cent (annualised), which was relatively lower than the past five-year average of 10.2 per cent.

It, however, noted that as credit quality pressures endured, and instances of downgrades increased, this wasn’t accompanied by an increase in the overall default rates, which softened to 2.5 per cent (annualised) in the first half of 2019-20, compared to the past five-year average of 3 per cent.

The comments come at a time when several players in the financial sector, including non-banking finance companies, housing finance companies as well as banks, have seen a downgrade of their debt by rating agencies.

Crisil also remained cautious about the financial sector and said challenges persist for those with wholesale-oriented loan books. It also expects non-performing assets for banks to further decline to about 8 per cent to 8.5 per cent by March 2020 from 9.3 per cent at the end of 2018-19.

The agency said that the credit quality pressures intensified for India Inc in the first half of the fiscal due to a variety of factors, including global and domestic economic slowdown, sharp fall in consumption demand, and slower government spending.

“Constrained access to funding also affected the credit profiles of entities across sectors, especially non-banks and real estate,” it noted.

Published on October 02, 2019
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