Credit quality of Indian corporate likely to worsen on liquidity constraints

MUMBAI: Credit quality of Indian corporate likely to worsen as demand continues to suffer liquidity constraints remain.

The annual default rate that is the number of companies defaulting on principal interest payment as a percentage of total number of companies rated by Crisil Ratings has risen to 3.4%, highest in the last ten years.

Of the downgraded entities, a one third have been in the default category, almost 188 of them..

The rating agency has predicted lower but sustained pressures on profitability, given an expectation of lower interest rates and softening of commodity prices.

"6% of our ratings carry a negative outlook," said Pawan Agrawal, director, Crisil Ratings.

The rating agency which is a fully owned subsidiary of global rating firm Standards & Poors expects the economy to grow by 6.9% in fiscal year 2013. S&P expects zero percent growth in the Euro zone. Thus demand from there will continue to remain a challenge.

According to the agency, the slippages to gross NPAs in FY12 was highest in the last 4 years at 2.5-2.6%. It is likely to remain broadly in the same range.

Cumulative non performing assets as a percentage of gross advance is estimated to be in the range of 3-3.3%, slightly higher than 3-3.1% in FY12. Sectors that will continue to be under stress are- textile, steel and construction engineering, power, commercial real estate and the new telecom players.

But the ratings agency says, the operating profitability for the services sector and established telecom players will improve in the current financial year.