India Inc’s Credit Profile strengthens during the Pandemic: Ratings Agencies

Corporate credit profiles registered steady improvement with a larger number of rating upgrades than downgrades

October 4, 2021

Improved credit profiles of corporates indicate a continued recovery in demand

Pharmaceuticals and specialty chemicals sector also maintained their strong performance

Increased capitalization and provisioning coverage ratios have strengthened the balance sheets of banks

Pace of rating upgrades is expected to be healthy in the second half of FY22

Despite the second wave of the pandemic, the corporate credit profiles have demonstrated a robust increase, which reflects a strong and sustained recovery in demand, as per CRISIL Ratings, India Ratings and Research, and ICRA Ratings, who released their reports on the performance of rated companies during the first half of FY2022.

For the April-September period, CRISIL Ratings saw its credit ratio increasing 2.96 times, with 488 upgrades and 165 downgrades.  As per the analytical company, India Inc’s credit quality remains ‘positive’. According to CRISIL Ratings MD Mr. Gurpreet Chhatwal, “A sustained recovery in domestic demand, government impetus to infrastructure spending, and export growth, spurred by a buoyant global economy as well as the ‘China plus one’ sourcing strategy of global players, has led to a strong rebound in business risk profiles of India Inc, thereby driving the increase in upgrades.”  Backed by global demand, the pharmaceuticals and specialty chemicals sector also maintained their strong performance.

With India Inc on the rise, the financial sector is better placed than it was a year ago. Rising levels of capitalization and provisioning coverage ratios have bolstered the balance sheets of banks. However, the retail and MSME credit sectors will continue to face testing times as smaller borrowers have been severely impacted by the pandemic. According to CRISIL, the banks’ non-performing assets (NPAs) are expected to increase to 8- 9% by March 2022 from around 7.5% in March 2021.

India Ratings and Research also upgraded the ratings of 150 issuers while downgrading ratings of only 49 issuers during this period. The corporate downgrade to upgrade ratio (D-U ratio) was at a low of 0.3 (1HFY21: 2.1; FY21: 1.4). To compare the FY22 performance, India Rating and Research used the data from FY19, as the performance in FY20 and FY21 was affected by the pandemic. ICRA improved the ratings of 303 units or 10% of its portfolio. It also stated that the burden on the credit quality of India Inc due to the uncertain economic growth and the effects of the pandemic seems to have largely subsided

However, the contact-intensive sectors continue to face credit pressures as ICRA downgraded several entities in the hospitality and the aviation sector in H1 FY2022. According to India Ratings, the pace of rating upgrades is expected to remain healthy but slightly moderate in the second half of FY22. However, the residual impact of the pandemic will continue to influence the credit profile.

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