Credit quality of Indian firms deteriorated in FY16: report

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Mumbai: The overall credit quality of Indian companies deteriorated further in financial year 2015-16, data released on Friday by rating agency Icra Ltd showed.

The volume-weighted credit ratio, which is an indicator of the number of issuers upgraded against those downgraded, was at 1.3 times for the just concluded financial year, lower than 1.9 times in financial year 2014-15, according to Icra.

The picture looks worse when you look at the quantum of debt downgraded.

The debt value-weighted credit ratio, which reflects the amount of debt downgraded compared with the amount upgraded, fell to 0.6 times in fiscal 2016 compared with 1.3 times in fiscal 2015.

“This (the debt value weighted ratio) suggests that systemic credit quality remains under strain, a fact that is also underscored by the rise in the financial sector’s non-performing assets, the large volume of corporate debt restructured or refinanced, the still-high leveraging levels of a large number of corporate entities and the large count and proportion of rating downgrades in the investment-heavy sectors,” said Anjan Ghosh, chief rating officer, Icra.

In financial year 2015-16, Icra said it has upgraded the ratings of 785 issuers and downgraded the ratings of 553 issuers out of a total of 7,371 rated issuers at the start of the year.

“The number of upgrades by Icra exceeded downgrades for three consecutive years in financial year 2015-2016,” the release said. The overall credit quality of Icra’s portfolio of rated issuers, however, remains constrained by sector-specific, issuer-specific and structural factors, ICRA said in the statement.

The rating agency added that metals and mining, real estate and construction, roads and engineering made up 40% of the total ratings downgraded in the last financial year.

“Among those downgraded, around 20% of the rating actions were prompted by weak outlook on demand or depressed realizations, an additional 20% were because of worsening of the working capital cycle and around 10% were caused by delays in project commissioning and cost over-runs,” said Jitin Makkar, head, credit policy, Icra.