Credit score improvements to decade high in April-September

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By Nasrin Sultana, Shayan Ghosh, Bombay

Indian corporate credit ratings improved significantly in the first fiscal half of the fiscal year, signaling a likely end to pressures on corporate credit quality that emerged from weak economic growth and covid-induced disruptions.

Unlike the first wave, businesses faced limited supply-side disruption during the second wave of the pandemic as businesses remained operational, adjusting to the new normal, experts said. Credit profiles have been supported by supportive monetary and fiscal measures such as the Reserve Bank of India’s Resolution Framework 2.0 for Micro, Small and Medium Enterprises, emergency credit line guarantees available up to at the end of March and the Union government’s emergency plan for sectors in difficulty.

Companies have seen their ratings improve with three rating agencies.

Icra upgraded the ratings of 303 entities, reflecting a 10% improvement in the credit profile of its portfolio, the highest rate of revaluation in a decade. During the period April-September, there were 163 degradations by the Icra, well below the 483 degradations of the FY21 and 584 of the FY20.

Icra said that the overall trends in rating stocks clearly indicate that the period of economic uncertainty and undue pressure seen on the business and financial risk profiles of entities is very likely over.

According to Crisil Ratings Ltd, the credit ratio in the first fiscal semester fell to 2.96 with 488 increases against 165 downgrades. The ratio was 1.33 over the previous six months. A ratio greater than 1 indicates that there are more upgrades than downgrades and vice versa.

“Most of the rating improvements came from areas such as construction and engineering, renewable energy. The improved pace of project execution and increased capital spending have clearly supported the credit profile of these companies, ”said Somasekhar Vemuri, Senior Director of Crisil Ratings Ltd.

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