Rating agencies see improvement in credit quality in FY18
However, they differ on outlook for FY19
MUMBAI: Our Bureau India’s credit quality improved in FY18, according to rating agencies Crisil and ICRA. Crisil upgraded 1,402 companies and downgraded 839 entities, resulting in a credit ratio of 1.67 times in FY18, compared to 1.22 times in FY17. It attributed the reasons for an improved credit quality to muted capex and record equity capital raising by corporates, which resulted in better health of balance sheets. Credit ratio in the second half moderated from the levels seen in the first half, it added.
ICRA upgraded the ratings of 646 entities and downgraded 418 entities, pointing to an improvement in the credit quality at 1.55 times in FY18, compared with 1.17 times in FY17. “Upgrades at 11 per cent of total rated entities, were higher than 8 per cent in the previous year, while the downgrades were broadly similar,” it pointed out.
According to Crisil, the credit quality of several debt-intensive sectors such as metals (especially non-ferrous), mid-sized engineering, procurement and construction (EPC) players, and select capital good sectors improved because of higher commodity prices and the government’s focus on infrastructure spending.
Differs on outlook
ICRA said the sectors in which the credit quality of participants continued to improve in general were auto ancillaries, petrochemicals and polymers, power (mostly renewable energy entities) and seafoods, besides housing finance and non-banking finance companies (NBFCs).
While both rating agencies agree on the overall improving trend in FY18, they differ on the outlook. While Crisil is cautiously optimistic, ICRA is negative.
“Going forward, barring stressed assets (₹11.5 lakh crore, or 14 per cent of bank advances as on March 31, 2017) , Crisil expects corporate credit quality to continue recovering on the back of firming up of domestic consumption and global demand, stable operating cycles, and steady commodity prices,” Crisil said.
However, ICRA expects the credit quality pressures to take longer to dissipate. “As India’s GDP growth shows signs of traction, but inflationary concerns build up too; as public investments offer the promise of engendering positive externalities, but hardening interest rates and banking sector woes create hindrances,” it said.