Q1 Results: Liquidity Crisis, Economic Slowdown Hurt Profit Of Rating Agencies
Revenue and profit of India's three listed credit rating agencies fell in the quarter ended June amid a slowdown in the economy, tight liquidity condition and scrutiny following a spate of defaults.
CARE Ratings Ltd.'s bottom line declined 46.3 percent year-on-year—the most among peers—in the three months ended June, according to exchange filing. In comparison, profit of ICRA Ltd. and Crisil Ratings Ltd. dropped 19.8 percent and 13.3 percent, respectively, during the quarter. Revenue of CARE Ratings, too, fell the most compared with ICRA and Crisil
Lower fundraising by corporates via loans and debt issuances after payment defaults at IL&FS Group subsidiaries triggered a liquidity crisis impacted ratings activity, leading to a decline in earnings. Sanctity of their rating actions have come under scrutiny after a rise in defaults of stressed companies. Along with this, a slowdown in the economy that kept away buyers of biscuits to cars only added to the woes of the ratings agencies.
“The prolonged period of headwinds faced by the NBFC sector since the end of the second quarter of FY19 had its impact on the borrowings by this crucial segment of the economy,” CARE Ratings said in a media statement. “With capex-related borrowings of the corporate sector also not picking up, the performance of the company got impacted.”
That apart, the weak operating environment hurt its bank loan ratings, Edelweiss said in a report.
The number of bank loan ratings—used by lenders to determine risk weights for their loan exposures—issued by CARE Ratings fell 41 percent year-on-year to 916.
ICRA reported an 8 percent yearly drop in its revenue from ratings business. “The de-growth in operating income was mainly due to sluggish growth in debt market issuances, both in the corporate and financial sectors,” it said in a media statement. “The bank loan ratings also remained subdued during the quarter.”
Crisil, however, fared relatively better than peers in the ratings business. “We saw continued growth across our ratings and advisory businesses. In the research segment, there was moderation as the risk and analytics business saw impact from changing regulatory stance, particularly in the U.S.,” Ashu Suyash, managing director and chief executive officer at the rating agency, said in a media release. “We are in an advanced stage of augmenting our products, creating new avenues to meet emerging client needs.”
Shares of CARE Ratings have tumbled 62 percent since September when the IL&FS crises broke out. While ICRA slumped 20 percent, Crisil fell 33 percent during the period.
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