Credit profile of India Inc weakens in H1 FY21

NEW DELHI: Amidst the current economic turbulence, rating agencies have been underscoring the weakening of the credit profile of a large number of entities in the first half of the fiscal year. Joining the likes of Crisil and ICRA, Care Ratings on Monday said its modified credit ratio (MCR) is still at the lowest levels since Q4 2013-14. 

The MCR in the first two quarters of the current fiscal year stood at 0.94 with sectors such as telecom, hospitality, real estate, construction, auto, retail trade, textiles, hospitality, food and food products seeing the sharpest deterioration in credit quality. On the other hand, education, sugar, hospitals & healthcare, pharmaceuticals, and IT sectors saw improved credit quality. “The majority of entities (73%) saw their credit ratings being reaffirmed in Q2 2020-21, even as the proportion of upgrades saw a decline (y-o-y basis). Entities with ‘below investment grade’ ratings saw a higher deterioration in their credit profile than the entities with ‘investment grade’ ratings,” Care said in a note. The MCR is defined as the ratio of upgrades to downgrades. In other words, an increase in the MCR implies an improving credit quality of the rated entities while a decline in the same signals a deterioration in credit quality of the rated entities.

The rating reaffirmations and upgrades during Q2 FY21 factored in the favourable financial position of the entities in terms of scale of operations, liquidity situation, capital structure, debt servicing parameters along with industry specific factors. 

Despite the unprecedented nature of the disruptions, however, the overall credit quality of the domestic entities has been better than that in 2012-13. “This can largely be attributed to the measures undertaken by RBI... to offer a six months moratorium on loan repayment and the emergency credit lines scheme of the government,” the agency noted.