Shipping containers sit stacked on the Hyundai Force container ship at the Jawaharlal Nehru Port, operated by Jawaharlal Nehru Port Trust (JNPT), in Navi Mumbai, Maharashtra, India, on Saturday, Dec. 16, 2017.Photographer: Dhiraj Singh/Bloomberg 

India Inc’s Credit Quality Remains Resilient, Says Crisil  

Credit quality of Indian companies is expected to sustain with some improvement seen across investment-linked sectors like steel and construction, according to a report by ratings agency Crisil. However, recent liquidity tightness in the credit markets, a weaker rupee and higher interest rates could impact credit quality negatively, the report added.

According to an analysis of companies it rates, Crisil’s credit ratio was at 1.68 times in the first half of the current fiscal year -2017-18, compared to 1.88 and 1.45 in the first and second halves of the last fiscal year. Crisil said that it upgraded 685 companies from April until September, even as 408 companies faced a ratings downgrade.

Credit ratio is defined as ratio of number of upgrades to number of downgrades. A ratio of more than 1 indicates that there are more upgrades than downgrades.

India Inc’s Credit Quality Remains Resilient, Says Crisil  

The debt weighted ratio, or the amount of debt upgraded compared to the debt downgraded, stood at 1.2 times for first half of the current fiscal year 2018-19, marginally lower than in the second half of last year.

The improvement in the credit ratio was driven by investment linked sectors so far this fiscal. At 2.15 times, the credit ratio of investment linked sectors is higher than the overall credit ratio for the first time in five years, said Somasekhar Vemuri, Senior Director at CRISIL ratings.

An uptick can be seen in investment linked sectors such as steel, construction and industrial machinery that benefited from buoyant commodity prices and higher government spending.
Somasekhar Vemuri, Senior Director, CRISIL Ratings

However, companies continued to face headwinds from rupee volatility and nervous credit markets. As many as 2,500 companies, most of them belonging to the oil, gas, power and telecom sectors could be affected by the high foreign currency outflows through net imports or borrowings, said Crisil.

The impact on the credit profile of these companies is expected to be upto 150 basis points. The hit, however, may be limited by hedging, ability to pass on higher pricing to end consumers, leaner balance sheets and parent and government support.

Outlook For Financial Services Ratings

The outlook for banks appears strong as credit growth is expected to see an uptick. The retail segment will continue to lead credit growth this year, with some revival expected in corporate credit demand from higher government spending and industrial activity.

CRISIL also expects non performing assets at banks to decline in the second half of the current fiscal with resolution picking up.

Volatiliy in the credit and equity markets has brought non banking financial companies into focus, states the report. While asset quality and capitalisation are comfortable at present, continued market disruption can constrain access to funding affecting growth and spreads of non banks, said Krishnan Sitaraman, Senior Director, at Crisil Ratings.

Raising equity on time and adequate internal capital generation have led to a higher capital base for non banks. Of the Rs. 40,000 crores raised by non banks in the past five years, nearly half was raised in the last fiscal year alone, showed Crisil’s analysis.

Active liquidity management and strong parentage should aid non-banks to navigate the situation, states the report by Crisil. However, prolonged liquidity strain could have an adverse impact on non-banks and would be a key monitorable, concluded the report.

India Inc’s Credit Quality Remains Resilient, Says Crisil