Reflecting the high interest costs and high commodity prices Crisil?s modified credit ratio (MCR, the ratio of upgrades plus reaffirmations to downgrades plus reaffirmations) for FY2008 has turned below one. Pegged at 0.97, it effectively means that the number of downgrades have outnumbered upgrades during the year.
According to N Muthuraman, director, CRISIL Ratings, ?This is the first time in four years that MCR has remained below one for an entire financial year. It marks a reversal after four years of steadily improving credit quality for Indian corporates. High debt exposure and acquisitions are main factors for such a development.?
Crisil expects corporate India will continue to face credit quality pressure because of high input costs and interest rates, coupled?for exporters?with lower realisations because of rupee appreciation.
The rating agency which is subsidiary of Standard & Poor’s, has effected 10 downgradings, five upgradings and 150 affirmations.
Clarifying the interpretation of the ratio, Muthuraman added that a below one ratio does not automatically result into more defaults. These corporates which have been downgraded would now have pay higher borrowing cost. The reversal comes at a time when companies? financial risk profiles are strong after four years of good performance and capital strengthening. Additionally, the median rating of the existing Crisil-rated population, in the ?AA? category, is high.
?We therefore do not expect any significant increase in defaults among rated companies in the medium term, despite some expected weakening in credit quality,? said Crisil. Crisil also expects moderation in GDP growth, including the industrial production growth rate, since these variables have exhibited strong correlation with MCR in the past.
New ratings assigned by Crisil has increased dramatically in 2007-08 (FY2008, April 1 to March 31): the number of new ratings assigned in the financial year exceeds the sum of those assigned in the previous four. This increase was driven by the rapid growth in bank loan ratings (BLRs). As of March 31, 2008, BLRs constituted 21% of outstanding Crisil ratings, up from a base of zero a year ago. In one year, CRISIL has rated bank facilities of Rs.1.92 trillion, representing more than one-eighth of the Indian banking system?s corporate exposure.