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Rating firms warned of headwinds in credit quality

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Mumbai/Kolkata: Major rating firms have warned of headwinds ahead in the credit quality of corporates due to the global slowdown and entity-level issues.

Crisil has seen more rating upgrades in FY19 than downgrades while Icras rating actions showed persistent pressure on the credit quality of India Inc.

Crisil upgraded 1,238 ratings in 2018-19 versus 716 downgrades during the year, compared with 1,402 upgrades and 839 downgrades in 2017-18. Its credit ratio, or the ratio of upgrades to downgrades, at 1.72 in FY19 was higher than 1.67 in FY18.

“While increased private consumption supported by budgetary announcements augur well for FY20 credit outlook, some headwinds are gathering (pace),” said Somasekhar Vemuri, Senior Director, CRISIL Ratings. “We expect moderation in the credit ratio as global growth slackens and the pace of government infrastructure spending slows.

Slower growth in government spending on infrastructure also means investment-linked sectors such as construction, engineering, steel, and construction equipment will see only moderate buoyancy.

Demand in real estate remains weak and refinancing risks also cloud the overall outlook. And competitive pressures are unlikely to ease for telecom operators, with the newest entrant expanding into more segments.

“Downward rating actions in FY19 werent caused by sector-wide or specific macro risks that affected the credit quality en masse,” said Jitin Makkar, head credit policy, Icra. “Notably, the downgrades were driven mostly by firm-specific concerns emanating from deterioration in business profiles or worsening of capital structures or increased liquidity pressures on the rated entities.”

Icra saw rating drift, calculated as the average upgraded notches per rated entity, minus the average downgraded notches per rated entity (an indicator of the extent and direction of rating changes) descending to -12% in FY2019. This was not only highRead More – Source