Corporate credit profiles suffer in H1, may continue to remain under pressure in H2: Rating agencies

Of the overall rated debt, the proportion to sectors classified as low resilience has decreased marginally to 3 per cent as of September but the ones in the medium resilience bracket has increased to 57 per cent in September as against 52 per cent in April, the agency said. Its President Gurpreeet Chhatwal, however, said that the agency is seeing some early signs of recovery in the economy but made it clear that the pandemic will leave permanent scars and the overall economy will recover to pre-COVID-19 levels only in 2021-22.

The economic impact of the COVID-19 pandemic has led to corporate India's credit profiles hitting the lowest in a decade, and the stress is likely to continue in the rest of the fiscal as well, two domestic rating agencies said on Thursday. Rating agency Crisil said the credit ratio, or the proportion of upgrades to downgrades reached 0.54 times, with 161 upgrades as against 296 downgrades in the first half of the fiscal year, and the debt-rated credit ratio that goes by the quantum of loans was also at a similar level of 0.55 times.

The moratorium helped the liquidity profiles of the companies and saved them from downgrades, Crisil said adding that over 2,000 of the 9,000 companies rated by it have availed of the benefit. The agency said the number of upgrades is unlikely to outpace the downgrades in the remainder of the fiscal year as well and pointed out that 60 per cent of the overall rated debt is in sectors with low resilience while 40 per cent is in highly resilient ones.

The agency analysed 42 sectors from a resilience to shocks perspective and found out that the proportion of rated debt where the stress levels have worsened increased in the past six months. Of the overall rated debt, the proportion to sectors classified as low resilience has decreased marginally to 3 per cent as of September but the ones in the medium resilience bracket has increased to 57 per cent in September as against 52 per cent in April, the agency said.

Its President Gurpreeet Chhatwal, however, said that the agency is seeing some early signs of recovery in the economy but made it clear that the pandemic will leave permanent scars and the overall economy will recover to pre-COVID-19 levels only in 2021-22. The agency said certain factors like whether there is a second wave of infections or not, and also whether timely restructuring takes place will determine the extent of gains going ahead.

Chhatwal said that among the 35 sectors that were analysed for a similar report in April, seven are showing a path to recovery while two have slipped into concerning territory by being weaker. The agency said gems and jewelery, realty, auto dealers and hotels are the ones possessing resilience, while power transmission companies, telecom and fast-moving consumer goods are among those with the highest resilience.

The picture on banks' asset quality as a result of the headwinds that companies face will be clearer by December, once the companies apply for restructuring, it said. The last time such a low credit ratio was seen was in the first half of 2009-10 when the number stood at only 0.1. However, the agency executives were quick to add that the global financial crisis was an imported one unlike the current one and its universe of rated companies was also lower.

Meanwhile, its rival ICRA also said there was a sharp increase in negative rating actions taken by it during the first half of 2020-21. It took 582 negative rating actions, which on an annualised basis accounted for nearly a third of its rated portfolio, as compared with the proportion of 23 per cent in 2019-20.

"This is hardly surprising considering the severity of the crisis and the synchronised impact it has had on economies, both domestic and global," the agency said. Hospitality is the only addition to the list of sectors where downgrades happened as the others like textiles and realty were already facing pressures in the low grpwth environment before the pandemic.

Its Head of Credit Policy Jitin Makkar said the situation could have been worse without the interventions seen on the fiscal, monetary and regulatory fronts..