The Crisil Ratings credit ratio (rating upgrades to downgrades) moderated to 2.19 times in the second half of fiscal 2023 from 5.52 times in the first half of fiscal 2023.

“Our Ratings Round-Up report for the first half of fiscal 2023 had presaged this because rising global inflation and the resultant interest rate hikes were expected to temper growth and weigh on the credit ratio. In all, there were 460 upgrades and 210 downgrades across sectors in the second half,” Crisil said.

While the upgrades rate fell ~320 basis points from the first half, and stood at 13.46 per cent, it was still higher than the 10-year average (up to fiscal 2022) of 10 per cent.

Also read: Eight out of 14 PLI schemes saw delays in implementation: CRISIL

Gurpreet Chhatwal, Managing Director, CRISIL Ratings said, “India Inc’s balance sheets have significantly strengthened and gearing levels continue to be at a decadal low. The median gearing of the CRISIL Ratings rated portfolio is expected to be ~0.45 time as at fiscal 2024-end, marking a correction from fiscal 2023. This, along with steadfast domestic demand and the government’s unwavering focus on infrastructure spending, has kept the upgrade rate elevated.”

These reasons will lend a positive bias to the credit quality outlook of India Inc, going forward.

The downgrade rate, on the other hand, has gone up to 6.14 per cent and almost reverted to its 10-year average rate.

Also read: Banks’ CD ratio to rise further as loan growth seen outpacing deposit growth

“The downgrade rates have started reverting to their long-term averages. Volatile commodity prices have impacted profitability, particularly of micro, small and medium enterprises (MSMEs), while export-oriented sectors face headwinds from a slowdown in their major markets,” said Gurpreet Chhatwal.

MSMEs, which benefited from policy interventions during the pandemic, will now have to contend with higher input cost and increasing interest rates — just as repayments on restructured loans begin.

About 60 per cent of the downgrades in the second half of fiscal 2023 were in the sub-investment grade category and these largely comprised MSMEs. As much as ~70 per cent of the downgrades were because of a decline in profitability and/ or liquidity pressure.

Related Topics