Credit quality of India Inc to suffer as demand revival take a long route amid Coronavirus scare: Crisil

By: |
March 20, 2020 6:10 PM

After the economic slowdown and consumption slump that weighed heavily on the credit quality issues of India Inc, Coronavirus is only going to intensify the pressure, said a report by rating agency Crisil.

Topping the list of high-risk sectors was the service sector, including airlines, malls, hotels, restaurants and retailers.
(Representative image)

After the economic slowdown and consumption slump that weighed heavily on the credit quality issues of India Inc, Coronavirus is only going to intensify the pressure, said a report by rating agency Crisil. “The impact will vary with sectors, and will be influenced by the extent of trade disruption, social distancing and the resultant economic slowdown,” the report said. While claiming that the export-oriented sectors are likely to take a hit amid the Coronavirus scare, Crisil said that a mix of monetary and fiscal measures are necessary to cushion demand.

Topping the list of high-risk sectors was the service sector, including airlines, malls, hotels, restaurants, and retailers. “The current social distancing measures will severely impact airlines, hotels, malls, multiplexes, restaurants and retailers. Lower footfalls and occupancies, decline in business volume and sub-optimal operating efficiencies will impact cash-flows of companies in these sectors,” analysts and economists at Crisil noted. Other sectors that the report claims will be hurt in the medium-term include textiles, steel, gems & jewelry and construction and engineering. Demand for the sectors could be hit in the near-term, in-turn significantly impacting credit pressure on the sectors. 

Further Crisil added that India’s exports are bound to take a hit in the next fiscal owing to weaker demand from China, Europe, Middle East, and the United States. The epicenter of Coronavirus, China, is one of India’s largest trade partners with trade amounting to close to $90 billion. The 15 worst-hit countries account for 45 per cent of India’s total exports, painting a grim picture for various sectors.

Stretching the recovery of consumption and demand in the economy, the impact will be on the liquidity of firms that will face challenges ahead of servicing debt on time giving a tough time to the already stressed loan books of banks.

While noting that Central Banks of US, Europe, UK and New Zealand have started to cut rates, Crisil noted that fiscal policies have a limited muscle so monetary policies have stepped in. Saying that it expects RBI to come out with a mix of rate cut and other liquidity easing measures to help the financial system which is seeing equity markets tank, Crisil stressed that if the pandemic spreads, an aggressive plan needs to be deployed to support income and cash flows. Crisil has cut India’s growth rate at 5.2 per cent  from 5.7 per cent factoring in the uncertainties caused by Coronavirus.

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