Slowing economy, falling investments hit cos' credit quality

NEW DELHI: A slowing economy, and a sharp downturn in the investment environment, particularly during the second half of 2008-09 have affected Indian companies' credit quality, according to ratings firm CRISIL.

The ratings firm has downgraded ratings for 84 entities in 2008-09, while upgrading those on only two entities. While there were 14 downgrades and 9 upgrades in 2007-08. Moreover, there were as many as 13 defaults during the year as compared to no defaults in the previous three years.

CRISIL's modified credit ratio (MCR)- the ratio of upgrades plus reaffirmations to downgrades plus reaffirmations- reached a 10-year low in 2008-09 at 0.86 times, declining from 0.97 times for 2007-08.

Roopa Kudva, Managing Director and CEO, CRISIL, said in an official release, ``Over the past six months, the pace of downgrades has clearly accelerated. Moreover, as on March 31, 2009, 13.8 per cent of CRISIL's long-term ratings had negative outlooks, the highest since CRISIL introduced rating outlooks in 2003. This indicates that continued economic deceleration can cause more downgrades over the next 12 to 18 months, unless the ongoing efforts to revive the global economy with fiscal and monetary measures start showing results."

Of the 84 entities whose ratings were downgraded in 2008-09, 15 were from the automobile and automotive ancillaries industries, 14 from the financial sector, eight from the textiles industry, and seven each from the metals and mining industry and the construction and real estate industry. As many as 68 of the 84 downgrades were driven either by lack of access to adequate funding, or by a sharp decline in demand, or both.