Economic slowdown: Credit downgrades surge as GDP slips, says India Ratings and Research

By: |
Published: February 11, 2020 6:20:52 AM

The quarterly downgrade-upgrade (D-U) ratio rose progressively during April-December in the current fiscal, with a total number of 188 issuer ratings being downgraded against 103 upgrades by Ind-Ra.

In an unprecedented fifth downward revision of its GDP forecasts for FY20, Ind-Ra had pegged it at 5.0% in January 2020 from 7.5% a year ago. In an unprecedented fifth downward revision of its GDP forecasts for FY20, Ind-Ra had pegged it at 5.0% in January 2020 from 7.5% a year ago.

With GDP forecasts being cut, there’s been deterioration in the corporate credit profile as well with rating downgrades by India Ratings and Research (Ind-Ra) increasing sharply during the April-December period of the current fiscal. The period saw the number of upgrades reducing dramatically, the rating agency said in its report.

The quarterly downgrade-upgrade (D-U) ratio rose progressively during April-December in the current fiscal, with a total number of 188 issuer ratings being downgraded against 103 upgrades by Ind-Ra.

The rating agency said the total downgrades in the first nine months of FY20 amounted to Rs 1.53 lakh crore of the rated debt compared with upgrades of Rs 49,600 crore of the rated debt.

“The downgrades of some debt-heavy financial sector issuers contributed significantly towards increasing this ratio — they contributed 45% by value of downgrades and only 6% by number of issuers,” Ind-Ra said.

At 1.83 in the nine months of FY20, the D-U ratio stood at one of its highest levels as decelerating economic growth deteriorated credit profiles of corporate India. In contrast, the ratio was 0.86 for the full year FY19.

The rating agency further said increasing working capital intensity and deteriorating profitability due to weak demand have emerged as the leading reasons for the rating downgrades in more than half of the cases.

Sluggish demand saw the consumption-linked sectors with a higher proportion of downgrades at 51%, followed by investment-linked sectors at 43% and the rest by financial sector companies.

Moreover, defaults were significantly higher at 4.9% compared to 2.9% last year as access to timely liquidity remained elusive. The agency further said that utilities and capital goods industries together contributed to the most number of defaults at 31%.

In an unprecedented fifth downward revision of its GDP forecasts for FY20, Ind-Ra had pegged it at 5.0% in January 2020 from 7.5% a year ago. The ratings agency estimates a marginal uptick in GDP for FY21 at 5.5%, though downside risks persist.

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Next Stories
1FM Sitharaman holds meeting with industry on direct tax dispute resolution scheme
2Huge funds of apparel exporters blocked under two schemes: FIEO
3Lakhs of crores of rupees still stuck in service tax, excise disputes even in GST’s third year