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Photo: Hemant Mishra/Mint
Photo: Hemant Mishra/Mint

Credit ratio of cos at decadal low

Moderate- and least-resilient sectors saw downgrades far outnumbering upgrades in the first half of FY21

Disruptions in business and economic activity because of the covid-19 crisis led to the worsening of India Inc.’s credit profiles in the first half of FY21. Crisil’s credit ratio for Indian companies in April-September was 0.54, the lowest in more than a decade, with 296 downgrades and 161 upgrades, according to data released on Thursday.

Credit ratio is the ratio of upgrades to downgrades. “Corporate credit profiles remain vulnerable even as demand claws back amid a raging covid-19 pandemic," said Crisil.

However, while the rate of upgrades plunged as expected with the pandemic crushing demand, the rate of downgrades did not surge as feared because of the cushions provided by proactive regulatory measures such as the liquidity window made available through the corporate bond market, the moratorium on debt servicing permitted by RBI, and temporary relaxation in default recognition norms for rating agencies allowed by Sebi, Crisil said.

High-resilience sectors, such as pharmaceuticals, had a credit ratio of over one in the first half of the fiscal, led by steady demand and robust balance sheets. However, moderate- and least-resilient sectors saw downgrades far outnumbering upgrades, because of the discretionary nature of goods and services and leveraged balance sheets for most.

Meanwhile, Icra registered 582 negative rating actions in the April-September period, which on an annualized basis accounted for 32% of the rated portfolio, compared with 23% in FY20.

Around 50% of negative rating actions were downgrades for firms rated by Icra. As downgrades rose, the annualized downgrade rate touched a high of 17% in H1FY21, compared to the last five-year average of 10%.

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