Even though the number of upgrades continue to outpace downgrades in the first half of the current financial year, there has been no improvement in the credit quality at the systemic level as a greater quantum of debt has been downgraded, rating agency Icra said today.
“The rating actions when seen in conjunction with the volume of debt upgraded or downgraded, suggest that systemic credit quality is still under strain,” the agency said in its half-yearly report summarising rating actions.
On outlook, Icra said overall corporate credit quality is showing signs of stability on a benign macroeconomic environment, sectors like power and steel remain under stress despite multiple policy actions from the government’s end.
For the reporting period, credit ratio or the number of upgrades to downgrades, stood at 1.8 times so far in FY16 as against 1.9 times in the same period last fiscal, it said.
Stating that only 20 per cent of its rated companies have witnessed a change in rating in the last three and half years, it added that both the number of downgrades and their severity have moderated in the last 18 months.
This assumes importance as the criticism directed towards rating agencies following the bond default by Amtek Auto. Care Ratings had suspended its investment grade AA- rating assigned to Amtek on August 7, while Brickwork Ratings lowered its rating to C from A+.
Crisil, the biggest agency, had to come out with a clarification saying it did not have a rating on the troubled auto company and the need to avoid severe actions.
Icra today said a bulk of rating downgrades during the first half of the fiscal were in metals and mining, real estate and construction, gems and jewellery and power sectors.
A majority 19 per cent of the downgrades were due to unfavourable domestic demand outlook and/or bleak outlook on realisations, it said.
It can be noted that the banks have been plagued with high incidence of asset quality troubles due to a variety of issues, including dip in economic growth, judicial interventions, currency fluctuations and slowdown in global demand, among others.
As per RBI, the overall stressed assets in the system, including the restructured advances, shot up to two-digit mark and included 4.6 per cent of gross non-performing assets.
Even though there has been sustained action from the government to better things, analysts and rating agencies do not expect a strong improvement anytime soon.
Icra said the sectors which witnessed upgrades included companies from the textiles, auto and auto ancillaries, food and food products, financial services, and pharmaceuticals.