The lingering effects of India’s shadow banking crisis and slowing economy have left companies’ financial health around the worst levels in years, but one gauge shows the prolonged deterioration has at least halted for now.
Care Ratings Debt Quality Index, which tracks credit metrics of 1,604 rated firms on a scale of 100, inched up 0.04 points to 88.02 in January, after eight straight months of decline. The prolonged downswing in credit ratings, triggered by liquidity stress in the shadow banking sector, had worsened earlier as companies struggled to raise funds and sell assets to pare debt, according to the rating firm.
While the improvement in the index for a month cannot be considered as “an end to the credit crisis in India, there are some signs of a turnaround," Madan Sabnavis, chief economist at Care Ratings, said by phone. “We have to be still watchful as there could be new pressure points emerging this year due to the economic slowdown."
Improvement in debt metrics may boost India’s efforts to bolster credit flow and kick-start economic growth that is set to fall to the weakest in more than a decade this fiscal year.
Taken with other recent indicators, there is some reason to believe that policy makers’ steps to boost liquidity is helping.
Premiums on top-rated five-year bonds of shadow lenders over government notes with similar maturities narrowed to a 16-month low in January. Indicators assessing liquidity in the system and total outstanding debt at 50 firms impacted by the crisis have remained stable, according to data compiled by Bloomberg.
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