Around 3,910 downgrades in FY21 reflect vulnerability in corporate credit profile

Dip in the economic activity caused by the pandemic has led to weakening of India Inc’s credit profile. At around 20 downgrades a day in the current financial year, finances of corporate India continue to be under pressure. According to rating agencies, corporate credit profiles remain vulnerable even as demand claws back.

In the past few months, credit ratings of public sector banks to non-banking financial companies (NBFC) have been downgraded. In the period between April and October 14, close to 3,910 firms have been downgraded, while 661 have been upgraded. Rating agency Crisil expects credit quality pressure on India Inc to persist in the second half of this fiscal.

In April this year, 726 companies were downgraded by various rating agencies, which came down to 595 companies in September, show the data from Bloomberg. According to Crisil, the rate of downgrades did not surge as feared because credit profiles were cushioned by proactive regulatory measures such as liquidity window made available through the corporate bond market, moratorium on debt servicing permitted by the Reserve Bank of India and temporary relaxation in default recognition norms of credit rating agencies allowed by Sebi.

According to Icra, in H1FY21, the top five sectors — in terms of the count and the proportion of entities in the sector — that faced a negative rating action were textiles, real estate, hospitality, auto ancillaries and construction.

On September 28, Moody’s Investors Service had downgraded IIFL Finance’s corporate family rating (CFR) to B2 from B1, senior secured debt rating to B2 from B1, and senior secured medium-term note (MTN) program rating to (P)B2 from (P)B1. In June this year, S&P Global Ratings lowered the ratings on four NBFCs – Shriram Transport Finance, Bajaj Finance, Manappuram Finance and Power Finance Corp. The rating agency believes that worsening operating conditions following Covid-19 have increased risks for financial institutions operating in India and expects a recession to hurt the financial sector.

In the first week of September, Moody’s had taken rating actions on five Indian banks – Bank of Baroda (BoB), Bank of India (BoI), Canara Bank (Canara), Punjab National Bank (PNB) and Union Bank of India (UBI). Moody’s had downgraded the long-term local and foreign currency deposit ratings of BoB, BoI, Canara and UBI to Ba1 from Baa3 and their baseline credit assessments (BCAs) to b1 from ba3.

The outlook on the ratings of the four banks is negative. At the same time, Moody’s has affirmed PNB’s long-term local and foreign currency deposit ratings at Ba1 and its BCA at b1. PNB’s ratings outlook was changed to negative from stable.