Credit rating agencies Monday said debt rating upgrades outpaced downgrades in the just-ended fiscal, but predicted the pressure will continue in the year ahead.

Crisil Ratings said there were 1,402 upgrades against 839 downgrades in fiscal 2018, a credit ratio of 1.67 times. During the same period, debt-weighted credit ratio was 2.31 times.

Crisil said the downgrade rate (number of downgrades) of 5.9% in fiscal 2018 is the lowest in the past five fiscals, indicating a sustained recovery in credit quality. This has helped the credit ratio stay above 1 for the fourth consecutive fiscal.

“Upgrades outnumbered downgrades in the good loan-book on the back of better financial indicators due to lower capital expenditure (capex) and record equity issuances. Continued headroom in capacity utilisation across sectors made corporates go slow on capex, even as India Inc raised a record amount of equity—Rs 1.75 lakh crore in the ten months ended 31 January, 2018," Crisil said in a report.

Crisil expects corporate credit quality improvement to sustain, driven by persistent buoyancy in commodity prices, rising industrial activity, expectation of better rural demand, and improving financial metrics. However, it warned the stock of gross non-performing assets (GNPAs) will peak in FY19. It said that GNPAs in public sector banks (PSBs) are expected to peak in fiscal 2019, before starting to decline as NPA recognition by banks gathers pace. “In absolute terms, slippages will remain high, mainly because of the slippage to NPAs in stressed accounts that were referred to various restructuring tools of the RBI in the past," it added.

Meanwhile, ICRA Ltd said upgrades in FY18, as a percentage of the total rated entities, were higher than that in the previous year, while the downgrades were broadly similar. It said, however, that the “trends do not imply that the credit quality pressures on India Inc. have subsided."

“The volume of the debt downgraded rose sharply to almost Rs3 trillion in FY2018, significantly higher than the debt of Rs1.7 trillion, downgraded in the previous fiscal," ICRA added.

ICRA expects the credit quality pressures to take longer to dissipate as inflationary concerns are building up though India’s gross domestic product (GDP) growth shows signs of traction. Another reason for it, pointed out by ICRA, is interest rates hardening and banking sector woes creating hindrances despite public investments offering promise of engendering positive externalities.

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