Ratings firms see more upgrades than downgrades in FY'15

MUMBAI: Rating firms are seeing an improvement in credit quality of Indian companies as number of rating upgrades have exceeded the number of downgrades for major raing companies.

For Crisil, overall, India Inc’s credit quality continued its slow recovery in 2014-15, with the credit ratio or the ratio of upgrades to down grades at 1.75 in the second half – up marginally from 1.64 in the first half.
For Icra, both the number and severity of rating downgrades moderated during 2014-15. Accordingly, its Credit Ratio or the ratio of upgrades to downgrades for Icra’s credit ratings improved to 1.9 times in 2014-15 from 0.9 times in 2013-14. Though overall credit quality has improved companies linked to infrastructure sector are still stressed. “Although credit ratio is showing an upward trajectory, the enormous debt on the balance-sheets of highly leveraged large-sized firm – most of which have linkages to the infrastructure sector – continues to stall any significant improvement in the credit profile” said Somasekhar Vemuri, Senior Director, Crisil Ratings. “ This will also thwart a significant improvement in the asset quality of banks in the near term. The pace and extent of recovery will depend on successful deleveraging of the balance-sheets of these indebted firms” he added.

Crisil study showed that investment-linked sectors such as capital goods, construction, engineering, steel and real estate continued to log the highest downgrade rates. While Icra said that sectors that saw a greater proportion of downgrades than upgrades relative to the median—include Engineering, Sugar, Petroleum/Oil & Gas, Metals & Mining, Hotels and Real Estate & Construction.

Upgrades are expected to continue remain higher than downgrades. However, broad-based recovery will hinge on a significant improvement in investment demand and the government's ability to continue to push economic reforms, Crisil said in a release. Deleveraging of balance sheets by indebted firms, inflation, and the impact of monsoon remain key monitorables.

While company-specific factors drove a significant majority of the upgrades in 2014-15, the anticipated stability in the macro environment and an improved business outlook limited instances of downgrades, said Icra in a release.