Rating agencies – Crisil, India Ratings and CareEdge – reported a moderation in their credit ratios during the second half of FY26, signaling rising stress. A credit ratio measures the proportion of rating upgrades to downgrades.
Tide Turns
CareEdge said that its credit stood at 1.93 times in H2FY26, lower than 2.56 times observed in the first half. During this period, 363 entities were upgraded and 188 were downgraded. “…..the moderation suggests early signs of stress amid a more challenging environment,” the rating agency said.
Crisil Ratings noted that the credit ratio of upgrades to downgrades dropped to 1.50 times in H2FY26 from 2.17 times in the prior half, as tariff-related uncertainties weighed on export-dependent companies.
Interestingly, only India Ratings saw its credit ratio edge down slightly to 3.1 in FY26 from 3.5 in FY25. Interestingly only ICRA’s credit ratio climbed to 3.1 in FY26 from 2.0 in FY25, as it expects that reduction in the US tariff risks and India-EU trade agreements have reduced the external headwinds.
However, it also warned of that escalation of hostilities in West Asia since late February 2026 has reintroduced risks, particularly for India’s energy and food security. In addition, higher subsidies could cushion commodity price pressure, but may strain government finances.
Crisil Ratings added that the West Asia conflict, however, would increase cost pressures and necessitate realignment of supply chains for India Inc. Amid this, India Inc’s credit quality outlook for fiscal 2027 is stable but cautious, it said.
Sachin Gupta, executive director and chief rating officer, CareEdge Ratings explained that the escalation of the West Asia conflict has added a new and potent layer of uncertainty…. “While domestic policy measures and relatively stronger corporate
balance sheets provide some cushion, the critical question is whether these domestic levers will be sufficient to keep credit quality on course if the global environment deteriorates further. For now, the answer leans towards yes — but the margin for comfort is narrowing,” he added.
Rating agencies warned that prolonged war could create headwinds for ceramics, airlines, auto components, fertilizers, oil marketing companies, and other crude-dependent sectors. ICRA has downgraded the outlook of airlines, fertlisers and refining and marketing to ‘negative’ from ‘stable’ due to elevated oil prices.
Asset quality stress may arise for banks
Rating agencies said that asset quality pressure could arise for banks due to the ongoing war. “Stress in the MSME segment amid macroeconomic challenges and geopolitical concerns may translate into some asset quality pressure in the near term,” ICRA said.
“If you look at the NPAs, specifically from the MSMEs and corporate segments, which are export-oriented, export-dependent to the Middle East region and those where LNG and crude oil are the main inputs, the NPAs in those segments could rise,” Somasekhar Vemuri, senior director at CRISIL, said in a webinar. The rating agency does not expect to see more than 10- 20 bps increase in the gross NPA numbers.