Starting the fiscal year 2021-22 on an optimistic note, rating agency ICRA has said the credit quality of India Inc. has experienced two consecutive years of elevated pressures, but recent trends suggest that the trough is behind us.

“While on a full-year basis, both FY2020 and FY2021 marked a sharp rise in the proportion of entities downgraded in ICRA’s portfolio (vis-à-vis the historical averages), the rating action trends since November 2020 suggest that incremental downgrade pressures have ebbed,” it said in a statement on Thursday. It noted that the proportion of rating upgrades has been on the rise over the past two quarters.

ICRA downgraded the ratings of 483 entities in 2020-21 reflecting a downgrade rate of 14 per cent, coming on the heels of an even higher downgrade rate of 16 per cent seen in 2019-20.

“The proportion was much higher than the preceding five-year average of 8 per cent, reflecting the elevated credit pressures seen in the past two years,” it noted.

In comparison, the ratings of 293 entities were upgraded by ICRA last fiscal.

Since November 2020, the Credit Ratio of ICRA-assigned ratings, defined as the number of entities upgraded to that downgraded, has consistently remained upwards of 1 time each month, it said, adding that earlier, the Credit Ratio had remained consistently below 0.6x in each month since May 2019.

K Ravichandran, Deputy Chief Rating Officer, ICRA, said, “The credit quality trends in the near to medium term would remain sensitive to the span of Covid infections and the attendant demand and supply-side disorders that it may engender.”

“Overall, while the credit quality challenges for India Inc. are expected to abate in the near term, compared with the past two years, the seeds of a reassuring and a broad-based recovery are yet to take root,” said Jitin Makkar, Head-Credit Policy, ICRA.

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