Broad-based recovery: India Inc’s credit outlook turns positive

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August 19, 2021 2:15 AM

Credit ratio rose 2.5 times in first four months of FY22 compared to 1.33 times in H2 of FY21

The rating agency said the credit ratio, which illustrates the number of upgrades to downgrades, rose to over 2.5 times in the first four months of the fiscal, compared to 1.33 times in the second half of FY21. It had touched a decadal low of 0.54 time amid the first wave in the first half of fiscal 2021.As vaccination rates increase and public health improves, governments will focus on furthering the digitalisation efforts

Signalling that there’s a sustained recovery of demand, Crisil Ratings on Wednesday upgraded its credit quality outlook for India Inc for FY22 to ‘positive’ from the earlier ‘cautiously optimistic’.

The rating agency said the credit ratio, which illustrates the number of upgrades to downgrades, rose to over 2.5 times in the first four months of the fiscal, compared to 1.33 times in the second half of FY21. It had touched a decadal low of 0.54 time amid the first wave in the first half of fiscal 2021.

Crisil said that its study of 43 sectors, excluding the financial sector, which accounts for 75% of the overall Rs 36 lakh crore in outstanding debt, shows that the current recovery is broad-based. Twenty-eight sectors are set to witness a recovery in demand back to pre-pandemic levels by the end of the fiscal, while for the remaining ones, it will be upwards of 85%, it said.

“Our outlook revision factors in strong economic growth, both domestic and global, and containment measures that are localised and less stringent compared with the first wave, which should keep domestic demand buoyant even if a third wave materialises. We believe India Inc is on higher and stronger footing,” Subodh Rai, chief ratings officer, Crisil, said.

Among sectors with the most rating upgrades, construction and engineering, and renewable energy benefited from the government’s thrust on infrastructure spending, while steel and other metals gained from higher price realisations and profitability, Crisil said, adding pharmaceuticals and speciality chemicals continued to see buoyancy backed by domestic and export growth.

However, contact-intensive sectors such as hospitality and education services continue to bear the brunt of the pandemic and have had more downgrades than upgrades, it said, adding that the RBI and government’s timely measures have cushioned the impact.

Besides regulatory relief measures, a secular deleveraging trend has provided India Inc with the balance sheet strength to cushion the impact on their credit profiles, Somasekhar Vemuri, senior director at Crisil, said. The financial sector is also better placed today than a year back, given less stringent lockdowns and the systems and processes put in place to manage collections amid the restrictions.

Support from the government and RBI through emergency credit lines, moratorium and one-time debt restructuring for pandemic-affected companies have helped banks and non-banks curb a rise in non-performing assets, it said. Higher capitalisation levels, better provisioning cover and increased access to liquidity have helped credit profiles in the financial sector, Crisil said, flagging unsecured retail, and micro, small and medium enterprises as the loan segments that will witness higher stress. Going ahead, the key monitorable from here would be a fat tail in the second wave, or an intense third wave, it said, adding rainfall distribution will also need to be seen.

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