Rating Downgrades Far Outpacing Upgrades, Shows Crisil Data

The ratio of the number of companies being upgraded to those downgraded is at a decade-low amid the sharpest economic contraction that India has seen in the last 40 years.

The credit ratio—which measures the ratio of the number of upgrades to downgrades—fell to 0.54 in the first half of the current financial year, the lowest in more than a decade, said rating agency Crisil in an update on Thursday. The first six months of the year saw 296 downgrades and 161 upgrades.

The “credit ratio was cushioned to some extent by regulatory support,” Crisil said, pointing to the six-month moratorium and one-time restructuring permitted by the RBI.

The pressure may continue in the second half of the year, Crisil cautioned.

Assessment Of Resilience Of Debt

Crisil's assessment of 42 sectors with a total debt of Rs 25.8 lakh crore threw up mixed signals:

• 40% of rated debt is in high-resilience sectors supporting their credit quality
• 57% of debt falls in sectors with medium resilience
• 3% falls in sectors with low resilience

Gems and jewellery, automotive dealers, airlines, real estate, hotels and resorts were some of the sectors with the lowest resilience. Power, fast-moving consumer goods, dairy, information technology, specialty chemicals, telecom, agrochemicals, pharmaceutical, food supply were among the most resilient sectors. Sectors exhibiting moderate resilience include thermal power generators, textiles, retail, and roads and construction.

Impact On Financial Services

The weakening credit quality will undoubtedly have an impact on the financial sector.

“The financial sector, too, will bear the brunt with growth in bank credit seen nose-diving to multi-decade lows of 0-1% and assets under management of non-banks contracting 1-3% this fiscal,” said Crisil.

According to the rating agency, gross non-performing assets across the banking sector would have spiked to 11.5%, without the restructuring relief offered by the RBI.

NBFC delinquencies could rise 50-250 basis points; that of microfinance institutions even higher, Crisil said.