Agencies clash on credit profile

Mumbai: India’s leading credit rating agencies have come out with contrasting report on the credit profiles of Indian corporates under their watch list with Crisil Rating claiming a recovery in the credit quality during the first six month of the current fiscal and ICRA reporting further deterioration in India Inc’s credit profiles. 

According to Crisil, there were 817 upgrades to 434 downgrades in the first half of FY18 with upgrades increasing by 12 per cent as against a 6 per cent growth in the number of downgrades. 

“At 6 per cent, the downgrade rate for the first half is at a five-year low, and well below the average of the past 10 semi-annual periods and at 12 per cent, the upgrade rate is slightly above average,” Crisil said. The improvement has come about primarily because of better financial indicators as corporates kept away from capital expenditure given the output gap or substantial headroom in capacity utilisation in many sectors. 

“These improvements are broadly on expected lines. Earlier, we had highlighted that the credit quality of several debt-intensive sectors such as metals (especially non-ferrous), sugar, and mid-sized engineering, procurement and construction (EPC) players was improving,” Crisil said. 

Barring stressed assets, Crisil expects corporate credit quality to continue recovering, driven by further improvement in balance sheets. Additionally, lower interest rates, stable operating cycles, firm commodity prices and improving domestic consumption demand will also help.

However, Icra said that the volume of debt downgraded by it during the same period was over 70 per cent higher than downgrades during the previous full fiscal. Icra upgraded the ratings of 304 entities and downgraded that of 261 entities in first half of fiscal FY18, closely resembling the corresponding averages for the preceding two half-fiscals. 

Ferrous metals, banking and finance and telecom were some select sectors where the number of downgrades was higher than upgrades during the period. Of the total debt downgraded by Icra, almost 50 per cent pertained to entities belonging to the banking and the financial sector. 

Even for entities in the non-financial sector, the aggregate volume of the debt downgraded in H1 FY18 was over 30 per cent higher than that downgraded during the full year of FY17. 

“In FY17, in the non-financial sector, the top 10 percentile of entities downgraded accounted for around 50 per cent of the total debt downgraded. This figure stood much lower at around 30 per cent in first half of FY18, signifying that credit quality pressures have become relatively more widespread, and are not just restricted to a limited set of entities,” said Jitin Makkar, head, credit policy, Icra.