Home / News / India's corporate credit quality continues to be strong: CRISIL

India's corporate credit quality continues to be strong in the first half, said rating agency CRISIL ratings on Monday, adding that strong balance sheets are expected to hold India Inc in good stead even though global uncertainties persist. 

As per CRISIL Ratings, corporate credit ratio (upgrades vs downgrades) continues to be high — at 5.52 times in the first half of this fiscal (H1-FY23) — underscoring ongoing broad-based improvement in India Inc’s credit quality. The credit ratio was 5.04 times in the second half of last fiscal (H2-FY22).

“The credit ratio is in line with the positive credit quality outlook CRISIL Ratings had articulated earlier — that upgrades will far outnumber downgrades through this fiscal," it said.

The rating agency highlighted the three reasons that stand out which are strengthening domestic demand, with the economy expected to grow 7.3% this fiscal, higher realisations leading to better cash flows, and continuation of debt-light balance sheets as capex remains low. The performance of upgraded companies improved significantly over the past three fiscals despite severe pandemic-related disruptions. 

Says Gurpreet Chhatwal, Managing Director, CRISIL Ratings, “Around 35% of all upgrades were from the infrastructure sector (including large realty players). Infrastructure sector is in a unique position of largely being a domestic story and generally decoupled from the global headwinds. Here, upgrades were driven by improved operating cash flows, completion of crucial project milestones and equity infusion. Over the last few years increasing share of central counterparties in infra projects has led to more predictable payment cycles providing additional comfort to credit quality."

While capacity utilisation is on an improving trajectory backed by healthy offtake, private capex is not expected to pick up substantially in the near term. This has arrested the downgrade rate, despite some sectors facing challenges such as higher input costs and rising interest rates.

Meanwhile, the financial sector’s credit quality outlook is seen stable, with bank credit growth seen up 14-15% this fiscal versus 12% last fiscal, while for non-banks4, credit growth is expected at 11-12% versus 6-8% last fiscal, as per the rating agency. As for asset quality, gross non-performing assets (GNPA) of banks is likely to improve 90 basis points (bps) on-year to 5% this fiscal, riding on post-pandemic recovery and higher credit growth, it added.

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