Credit Woes in India Seen Pressuring Modi to Take More Steps
The $20 billion corporate tax cut and the 135 bps RBI rate cut may not be enough to bolster the credit metrics of Indian firms.
(Bloomberg) -- A $20 billion tax cut and the lowest borrowing rates in almost a decade may not be enough to bolster the credit metrics of Indian firms, top raters in the country say, putting pressure on policymakers to take additional steps to kick start the flagging economy.
“A meaningful and broad-based improvement in credit quality may not be on the horizon yet,” analysts at Moody’s Investors Service’s local unit ICRA Ltd. said in a note. Indian authorities may need to consider other demand and supply-side measures if they are to turn around the economy and improve credit profiles in the near term, ICRA said.
A 15-month long cash crunch in the shadow banking sector and a sharp slowdown in growth has dragged the financial health of Indian firms to multi-year lows. Crisil Ltd.’s credit ratio -- the number of upgrades to downgrades -- dropped to 1.21 in the six months ended September, a three-year low, while a Care Ratings index shows that credit metrics of local companies slumped to the lowest in at least seven years.
Meanwhile, the Reserve Bank of India has slashed its economic growth projection for the year to March to 6.1%, from 6.9% estimated earlier, the biggest cut in its forecast in at least five years.
The government has announced a slew of steps, including mergers of state-run banks and tax benefits on vehicle purchases, while RBI has cut borrowing costs five times this year and promised further easing if needed. As the next step, India could cut personal income tax rates to help spur spending, according to BofA Merrill Lynch Global Research.
“The ability of the measures to improve sentiment and liquidity will be crucial to the credit outlook of corporates in fiscal 2020,” according to a Crisil note. “The credit outlook continues to be cautious.”
--With assistance from Finbarr Flynn.
To contact the reporter on this story: Rahul Satija in Mumbai at rsatija1@bloomberg.net
To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Anto Antony, Ravil Shirodkar
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