Covid-19 impact: Even the best of banks, Corporate India to plumb new depths

21 downgrades a day since January compared with 15 between January and mid-March.

The best of India’s companies and banks are in a spot as the pandemic-related lockdown brings business to a halt. In an economy ravaged by paycuts and lay-offs, experts expect financiers — both for consumer and corporate loans — to see delayed repayments and probably even defaults.

Even otherwise, consumption demand for large-ticket items like homes and high-priced durables is expected to remain anaemic for the rest of the year while investments are likely to come to a complete standstill pressuring revenues and cash flows across India Inc. Corporate India’s finances already look far more stretched than they did even a month back.

At 21 downgrades a day between January and now, compared with 15 downgrades a day between January and mid-March, the deterioration in companies’ financial health has been rapid. The pain isn’t about to end anytime soon; Crisil believes downgrades will continue to outnumber upgrades in 2020-21 following the economic impact of the Covid-19 pandemic.

Last Friday, S&P Global Ratings lowered the ratings on Shriram Transport Finance to ‘BB’ from ‘BB+’ as it expects funding conditions could tighten amid challenging operating conditions and weakness in asset quality. The outlook for Bajaj Finance, too, was also revised to negative as it was for Manappuram Finance, Muthoot Finance and Power Finance Corporation. It wasn’t just NBFCs, S&P believes banks too could be impacted by heightened economic risks. The rating outlooks for Axis Bank and ICICI Bank were revised to negative.

From JSW Steel to Tata Motors and to a clutch of NBFCs, including IndiaInfoline Finance, businesses across sectors are being monitored by ratings agencies. In the first four months of 2020, close to 2,240 firms have been downgraded, while only 439 have been upgraded. Among the worst-hit sectors are textiles, real estate, hotels, automobiles and auto parts. The disruption to the economy due to the extended lockdown would hit, not just hurt, local demand but also demand from overseas thereby damaging India’s exports.

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