Upgrades outnumbering downgrades, Crisil credit ratio close to 1

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March 9, 2021 1:50 AM

Crisil also cautioned that the extent of increase in stress among companies and, in turn, for banks and non-banks will be the monitorable in the road ahead, even as improving demand provides offset.

Similarly, Crisil Ratings had upgraded its ratings on the long-term debt facilities of Muthoot Finance to ‘CRISIL AA+/stable’ from ‘CRISIL AA/positive’.The four NBFC’s under the Muthoot Pappachan Group are: Muthoot FinCorp, Muthoot Capital, Muthoot Microfin and Muthoot Housing Finance.

Rating agency Crisil on Monday said its credit ratio (upgrades to downgrades) has been inching closer to 1 between October and February this fiscal (FY21). Crisil’s credit ratio was 0.54 during the first half of FY21. The five months between October to February saw as many as 244 upgrades compared with 208 upgrades for the whole first half of the current fiscal, Crisil said, adding that downgrades continued to be material because the end of moratorium on debt-servicing has impacted vulnerable companies.

As per rating agency, the ratio has improved due to recovery in demand that has led to guarded optimism about the credit quality of India Inc. Subodh Rai, chief ratings officer, Crisil Ratings, said, “The improvement in the credit ratio was driven by more upgrades in moderately resilient sectors such as construction, engineering and electricity generation, which got support from the relaxation of lockdown, revival in demand and higher commodity prices.”

Crisil also cautioned that the extent of increase in stress among companies and, in turn, for banks and non-banks will be the monitorable in the road ahead, even as improving demand provides offset.

Highly resilient sectors such as pharmaceuticals and agrochemicals performed well owing to sustained demand. The credit ratio for these sectors remained above 1 even during the bleakest period of the pandemic as per Crisil.

However, in low-resilience sectors such as hotels and resorts, real estate developers and airport operators, downgrades continue to outpace upgrades owing to their discretionary nature and leveraged balance sheets.

Akshay Chitgopekar, director, Crisil Ratings, said, “We maintain a cautiously optimistic outlook on credit quality for the near to medium term, supported by normalisation of economic activity, good agriculture performance and sustained rural demand, and the Budget prop to infrastructure investments.” However, a second wave of pandemic, especially with mutations that undermine the effectiveness of current vaccines, leading to containment measures can derail the ongoing recovery, he added.

Last week, Crisil had revised outlook on on long-term debt instruments of Canara Bank, Union Bank of India and Indian Bank to stable from negative. Similarly, Crisil Ratings had upgraded its ratings on the long-term debt facilities of Muthoot Finance to ‘CRISIL AA+/stable’ from ‘CRISIL AA/positive’.

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