There are early signs that corporate credit quality in India is improving. Lower interest rates and the retreat of fear from the financial markets have helped firms ease some of their financial stress.
But it is too early to relax. Credit rating agency Crisil Ltd said in a Thursday research note that though pressure on credit quality has abated in the four months to July, it has not gone away. The rating agency said there were 13 rating upgrades compared with 90 downgrades.
The ratio of upgrades to downgrades—the so-called modified credit ratio—is a useful economic indicator.
Besides the big companies that gorged on debt to fund large overseas acquisitions and real estate companies that expanded too quickly, a host of other companies still have weak balance sheets.
Yet, there is little doubt that Indian companies managed their finances far better in the recent economic boom than they did in the boom of the mid-1990s. That will allow them to repair their balance sheets far quicker than before, assuming there are no further macroeconomic shocks.