India Inc's credit quality improves in H1, says Crisil

KOLKATA: Rating company Crisil Ratings said that credit quality of India Inc has improved in the first half of the current fiscal but expressed concerns over the sustainability of this trend given the headwinds that India Inc continues to face.

There were 646 upgrades to 553 downgrades by the rating company in the first half. The credit ratio -- the number of upgrades to downgrades -- improved to 1.2 times in the first half compared with 0.8 time in the second half last fiscal.

“The focus now shifts to the sustainability of the improvement in credit quality. The investment cycle is yet to pick up, there hasn’t been a material deleveraging in corporate balance sheets, and weak assets continue to mount in banking. To boot, global growth is also weak," Somasekhar Vemuri, senior director at Crisil Ratings was quoted as saying in a statement.

He said that fresh rate cuts by Reserve Bank of India with their transmission by banks, the pace of implementation of reforms, and the rupee movement against the US dollar will be key to India Inc's health.

In the first half, upgrades were concentrated in the domestic consumption-linked sectors such as auto ancillaries and packaging, and in the exports-linked pharmaceutical sector. Downgrades were mainly in the investment-linked sectors such as construction, industrial machinery, real estate and metals.

"The significant change this time was the decline in the value of debt downgraded. At about Rs 0.4 trillion in the first half of this fiscal, it is the lowest and only a fourth of the Rs 1.4 trillion average of the past 10 semi-annual periods," Pawan Agrawal, chief analytical officer at Crisil Ratings said.

"The reason for this was less intense pressure on commodity-linked sectors, especially metals, following stabilisation of prices and policy support in the form of anti-dumping duty and minimum import price from the government," he said.

For the first time in the last 10 semi-annual periods, the debt-weighted credit ratio rose above 1, which underscores value of debt upgraded is more than those downgraded, and surged to 2 times in the first half of fiscal 2017 compared with 0.2 time in the second half of fiscal 2016.