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October 01, 2019

CRISIL Ratings Round-Up: Credit quality pressures intensify in first half of fiscal 2020

First-half of fiscal 2020

Credit quality pressures intensified for India Inc in the first half of fiscal 2020, driven by an interplay of factors including global and domestic economic slowdown, sharp fall in consumption demand, and slower government spending. Constrained access to funding also affected the credit profiles of entities across sectors, especially non-banks and real estate.


CRISIL’s debt-weighted credit ratio (value of debt1 upgraded to downgraded) plunged to 0.25 time in the first half of fiscal 2020, compared with 1.65 times for fiscal 2019.


The value of debt downgraded more than trebled to Rs 1.38 lakh crore in the first half of fiscal 2020 from Rs 39,000 crore in the first half of fiscal 2019. That’s the highest for any half since fiscal 2016.


Across rating categories, entities with higher leverage saw more downgrades as pressure from the demand slump intensified. Declining profitability and stretch in working capital cycles also were reasons for the downgrades. On the other hand, those with lower leverage withstood the demand-side challenges better.


Over the past five fiscals, the median gearing for CRISIL-rated companies2 has improved from 1.3 times to 0.9 time, which reflects both, deleveraging that’s been underway and resilience to demand pressure.


That also explains why, upgrades continue to outnumber downgrades despite a sharp decline in CRISIL’s credit ratio (upgrades to downgrades) for the first half of fiscal 2020 to 1.21 times3 – the lowest in the past six half-yearly assessments, and down from 1.73 times for fiscal 2019.