Credit quality of India Inc slipping; NPA seen at 4.4% in March: Crisil

MUMBAI: Ratings agency Crisil on Monday said credit quality of India Inc is on a "slippery wicket" due to demand slowdown and liquidity issues, and that banks will therefore see further slippages in the already deteriorating asset quality.

"India Inc's credit quality (is) on a slippery wicket," it said in a note released on Monday.

During the first half of the fiscal, the agency downgraded as many as 478 companies compared to the 417 upgrades, it said, attributing a majority of the downgrades to demand slowdown and liquidity issues.

"Eighty-six per cent of the downgrades were due to demand slowdown and stretch in liquidity caused by delays in receivables," it said, adding the situation will remain grim due to the continuance of the two factors and the high interest rates.

"Going forward, demand and adequacy of funding will drive credit quality of companies. The downgrades will continue to outnumber upgrades in the near term, and the intensity of downgrades may even increase," it warned.

Power, road transport and construction sectors witnessed the highest number of downgrades in the first half of the fiscal, Crisil said.

An analysis of 2,481 investment grade firms has shown that one-fourth of them are "highly vulnerable" to demand slowdown, while one-sixth might witness liquidity constraints.

Cautioning that the ongoing stress is likely to percolate down to the banks' asset quality, Crisil's senior director Pawan Agrawal said, gross non-performing assets of the system will grow to 4.4 per cent by the end of the fiscal, up from the 3.3 per cent in the same period of last fiscal.

Systemically weak assets -- which it computes as gross NPAs plus 30 per cent of the restructured assets -- will slip by 1.40 per cent to 5.7 per cent from 4.3 per cent last fiscal, it said.

The report said 30 per cent of the restructured standard assets, excluding the exposure to the state power utilities, have a chance to slip into NPAs over the next two years on account of the "L-shaped economic growth trajectory expected."