A day after largest rating agency, Crisil, released its findings and outlook on credit quality of India Inc, ICRA also confirmed that further credit quality pressures have eased and volume of the debt downgraded decreased sharply in FY17 compared to FY16.
“While incremental downgrade pressures have subsided, the prospects of a definitive improvement in credit quality are not reassuring as yet. The pace of improvement would only be gradual as businesses adjust to and recover from balance sheet stress, tracing the recovery in business growth and improvement in capacity utilization,” it said in a note.
In FY17, ICRA upgraded the ratings of 603 entities and downgraded the ratings of 517 entities. While the proportion of entities downgraded has broadly remained in the range of 7-8 per cent for three consecutive years, the value of the debt downgraded has been reducing. Value of debt downgraded significantly reduced to Rs. 1.7 trillion in FY17 from Rs. 3.0 trillion in FY16, according to ICRA.
Sectors where the number of upgrades exceeded downgrades were auto and auto ancillaries, pharmaceuticals and chemicals. Sectors such as gems and jewellery,engineering and andmetals continued to account for a large share of downgrades.
While ICRA projects the gross non performing assets of banks to increase to 9.9-10.3 per centby FY18 end (9.5 per cent as on December 31) because of possible slippages from large accounts under the “standstill clause” pertaining to the various schemes for resolution of stressed assets, this is unlikely to result in a material increase in the value of the debt that may be prone to downgrades. This is because the existing credit ratings of the large and stressed borrowers, including those under the standstill clause, already reflect their stressed positions,it said.
POST DEMONETISATION ICRA expects consumption-oriented sectors like automobiles, consumer durables, food products and FMCG to revert to their earlier growth trajectory and continue their superior credit profiles compared to investment-oriented sectors such as capital goods, real estate, building materials, metals and telecom.
The power sector will show a mixed trend. While distribution entities have gained from implementation of the UDAY scheme and the resultant savings in interest cost, independent power producers continue to suffer on account of low plant load factors, slow pace of signing fuel supply agreements and power purchase agreements, besides lack of resolution on compensatory tariffs.