Covid-19 Impact: Sectors Where Rating Agencies See Elevated Credit Risk
Motorcyclists ride past a Maruti Suzuki India Ltd. showroom in Ambattur, Chennai, India. (Photographer: Dhiraj Singh/Bloomberg)

Covid-19 Impact: Sectors Where Rating Agencies See Elevated Credit Risk

The sudden stop experienced by businesses ranging from airlines and hotels to automobiles could mean heightened credit risk for companies in these sectors even after the three-week lockdown imposed by authorities is lifted.

The lockdown, announced by Prime Minister Modi on March 24 to curb the spread of Covid-19, is set to end on April 16. A pick-up in business, even after the lockdown is lifted may be slow and could have a protracted impact on credit profiles.

Over the past week, credit rating agencies have identified several sectors in particular where they see risks lingering.

CRISIL Ratings analyzed the impact of the Covid-19 pandemic on corporate across 35 sectors, accounting for a total debt of Rs 23 lakh crore in its ratings roundup report for the second-half of this fiscal.

Around 15 sectors, with around Rs 10 lakh crore of rated debt, were classified as high resilience sectors and another 15 sectors, with Rs 12 lakh crore of rated debt, will have moderate resilience to the slowdown in economic activity in the coming weeks, the rating agency said..

Five sectors, with around Rs 92,000 crore in rated debt, have the least resilience due to lock-down imposed by the government last week as well as because of weak balance-sheets and high leverage, it said. These sectors include airlines, gems and jewelry, auto dealers, real estate and steel.

We foresee India Inc’s credit quality deteriorating in the near-term. Our study of 35 sectors, both from manufacturing and services, however, shows sharp variation in resilience in a post-Covid-19 landscape. Strong balance sheets or continuing demand will support some sectors during the current lockdown. However, some other sectors could be hampered by collapsing discretionary demand or high leverage
Gurpreet Chhatwal, President, CRISIL Ratings

Airlines And Airport Operators

Since the beginning of February 2020, international and domestic passenger load factors dropped by 570 basis points year-on-year and 100 basis points year-on-year, respectively, said India Ratings and Research.

Traffic during the summer season, which is a peak travel period, will be severely impacted. For airport operators, this will impact sales which come from footfalls of passengers at airports, India Ratings said.

As both airlines and airport operators see cash flows dwindle, they will need increased debt funding to meet lease rentals and interest payments, the rating agency said. This could mean that the impact of the lockdown will last well beyond the immediate time frame when business is at a complete standstill.

India Ratings estimated that the three low-cost carriers will require additional funding of about Rs 3,500 crore even if the outbreak is contained in the next three months and Rs 14,500 crore if the outbreak persists for in the next 12 months ratings roundup report for the second-half of this fiscal


ICRA revised the outlook for the hospitality sector to negative citing the impact of Covid-19.

Occupancies across hotels in India have crashed during March 2020 and cancellations are at all-time highs, said ICRA. “Risk aversion to travel and unfamiliar surroundings is high,” the rating agency said.

According to the rating agency, the travel and tourism industry will witness one of the longest tail periods of impact, potentially running into multiple quarters, following the Covid-19 wave.


Most original equipment manufacturers and auto component firms have shut down manufacturing units and production is on hold. The two main auto clusters in the country, in Pune and Gurugram, have been completely shut, said CARE Ratings.

“Even if the pandemic is curtailed, consumer sentiments are expected to be unfavourable and demand is expected to remain muted during H1 FY21 led by fluctuating and uncertain economic conditions,” it said.

While large manufacturers have liquidity buffers and strong balance sheets to survive the headwinds to some extent till production normalises, other companies will not be able to survive without intervention and support from the government, said ICRA Ratings.

It added that automobile volumes would decline by 15-16 percent in FY20 and remain flattish in the coming fiscal, leading to credit weakness for a number of firms.

Real Estate And Construction

Developers have been stressed since the collapse of IL&FS in September 2018, which led to a funding crunch for many firms in this business.

The current situation will worsen the stress.

Sales and collections will witness moderation in the months to come, said ICRA Ratings. However, the three-month moratorium on term loan installments announced by the Reserve Bank of India provides comfort on overall developer cash flows during this period.

If the lockdown is extended, the impact of the Covid-19 outbreak on economic activity could be deeper and more sustained, leading to a crunch in cash-flows and project completion for developers, ICRA said.

According to India Ratings, overall residential demand is likely to decline this year and will be suppressed due to weaker demand, economic growth and supply-side issues. This will lead to the unsold inventory levels remaining high, it said.

Steel Manufacturing

According to Crisil Ratings, the demand slowdown in the construction and automobile sector will impact steel manufacturers significantly this year.

“A continuing slowdown in these sectors owing to Covid-19 and other factors, besides difficulty in realisations, could add to the credit pressure on steel makers,” it said.

CARE Ratings said steel production will be impacted in the coming month due to staff shortages, especially contract workers and migrant labour that work in factories. “Many companies are also complaining of staff shortage as employees rush back to their hometown amidst the virus scare. Many factories are working at lower utilisation levels due to shortage of staff,” it said.


Electricity demand in the country has already been impacted and is expected to decline by 20-25 percent on a year-on-year basis during the period of lockdown as industrial and commercial establishments are shut down and passenger railway services non-operative, according to ICRA Ratings.

“This would, in turn, adversely impact the revenues and cash collections for distribution utilities in the near term,” the rating agency said. A drop in consumption from high paying industrial customers and likely delays in cash collections are risks for this segment.

ICRA also fears that state distribution companies will delay payments to power generation and transmission companies. This, in turn, could lead to power generation and transmission companies requiring further liquidity, beyond their debt service reserve and undrawn working capital limits.

Meanwhile, under construction renewable power projects will face execution delays and disruptions in the supply chain and labour availability, ICRA said.

Banks And NBFCs

Should stress build up across different industries and consumer segments, rating agencies fear a build-up of bad loans at banks and non-bank lenders.

Rating agencies see a material hit to asset quality, although the RBI’s decision allowing banks to offer a three-month moratorium may delay the impact.

“The RBI’s guidelines permitting banks and non-bank financial institutions to grant a three-month moratorium on loan repayments will soften the negative credit impact that the coronavirus has had on their borrowers in the near term,” wrote Moody’s Investors Service. “However, there are still material downside risks to asset quality given the halt in India’s economy, the impact of which will not be known until a few quarters after the end of the moratorium.”

Non-bank lenders may see a hit on asset quality, with the added strain of raising funds from the market, said Fitch Ratings. “The RBI’s recent liquidity and regulatory support measures should help to improve the funding environment in the near term, but it also underlines the severity of the situation and Fitch sees continued uncertainty in the coming months nonetheless,” the rating agency said.

Fitch added that since current disruptions are coming over and above already existing asset quality stress, the bad loan cycle could get extended.

Also read: Coronavirus Exposes India’s Official Callousness

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