Credit Quality

Credit quality improves as stage-3 assets dip to 4.6%

Interest rate hikes, global slowdown, stubborn inflation pose risk

CRISIL said these sectors would see a moderation in cash flows vis-a-vis earlier expectations due to slowdown in demand from end-user markets

Carrying on with the momentum since early FY22, credit quality of corporates has strengthened further in the first half of the current fiscal with rating upgrades being more than three times that of downgrades, says Icra Ratings. Upgrades saw an 18 per cent increase in the agency's portfolio entities in H1 on an annualised basis, which in FY22 was a notch higher at 19 per cent, making it a significant mark-up over the past five-year and 10-year average of 11 per cent, the agency said. The agency upgraded 94 companies in the first half of FY21, which went up to 303 in H1 FY22, but declined to 250 in H1 FY23. For the full fiscal of FY21 there were 282 upgrades which doubled to 561 in FY22. As against this, the numbers of downgrades were 200 in H1 FY21, 108 in H1 FY22 and 76 in H1 FY23 and at 316 in FY21 and 184 in FY22. The credit ratios stood at 0.5, 2.8, 3.3, 0.9 and 3 respectively. The agency, however, said the upgrades in the reporting period were concentrated in a few sectors.

India Inc's credit quality showed further improvement in April-September period with the ratio of upgrades to downgrades inching higher. The credit ratio's improvement to 5.52 in H1FY23 as compared to 5.04 in H2FY22 was driven by leaner balance sheets led by healthy cash flows and muted investments, Crisil Ratings, which rates 6,800 companies, said. However, the agency clarified that the data may not be fully representative as many small businesses with outstanding ratings have turned non-cooperative in sharing data on a continued basis which can be driven by adverse financial health. India Inc has emerged stronger post-pandemic, its managing director Gurpreet Chhatwal said, exuding confidence that the corporate India can weather the current storm caused by global events like higher inflation and monetary tightening which will hurt India's exports. Crisil's senior director Somasekhar Vemuri said there can, however, be a moderation in the credit ratio going ahead due to some of the

Fund flow to the sector has improved but some smaller MFIs still find it difficult to access finance from banks

Icra said credit quality rebounded in FY22 after the economic slowdown in FY20 and the pandemic scarred FY21

Geo-political tensions may limit further improvement in FY23

Bank financing of firm investment has retreated in favour of equity financing

Manufacturing, Infra firms see uplift; NBFCs face hit

A 31.5 per cent stake in Gangavaram Port is also credit neutral, the report said

Profits and credit quality of companies rated by S & P Global Ratings in India, China and Pacific are recovering about six months faster than the agency anticipated with reducing downside risk to ratings.Indonesian companies, on the other hand, are unlikely to recover until the second half of 2022, said the report titled 'Asia Pacific Corporate and Infrastructure Credit Outlook 2021' which covers entities in India, China, Japan, Indonesia, Australia and New Zealand.The report discusses the pace at which corporate sector in these countries is likely to recover from Covid-19 pandemic. It also includes a list of credit trends on the radar of S & P Global Ratings analysts in 2021, including demand recovery, funding conditions and financial discipline."Significant downside risk persists for the credit quality of Asian companies with negative rating outlooks on nearly 25 per cent of investment-grade and about one-third of speculative grade companies we rate in region," said S & .

The MCR, the ratio of upgrades plus reaffirmations to downgrades plus reaffirmations, rose to 0.96 for Q3FY21

Today's rating action concludes the review for downgrade initiated on April 13, 2020, Moody's said in statement

A more granular analysis of FY19 and FY18 credit data shows that of the 161 and 148 firms which fall in the 'very large accounts' category, 126 firms were common for both the years

The asset quality deteriorated for small enterprises (SMEs) as well but with lesser intensity, according to CARE Ratings

For majority of the sectors, average risk weight (loan exposure of banks) has declined between March and September 2019

Jewellery, garments, construction bear brunt of downgrades as slowdown, sharp fall in consumption demand, slower govt spending weigh

Liquidity pressures trigger stress; SMEs face brunt

It said the ratio of downgraded debt to upgrades has moved beyond one for the first time in five years to 1.92