Credit rating upgrades at a decade’s high in April-September

Credit ratings of Indian companies have improved significantly in the fiscal first half, indicating a likely end to pressures on the credit quality of firms that emerged from weak economic growth and covid-induced disruptions.

Unlike the first wave, businesses faced limited supply-side disruptions during the second wave of the pandemic as companies remained operational, adapting to the new normal, said experts. Credit profiles were sustained by supportive monetary and fiscal measures such as the Reserve Bank of India’s resolution framework 2.0 for micro, small and medium enterprises, emergency credit line guarantees available till March-end and the Union government’s relief package for stressed sectors.

Companies saw an improvement in their ratings from three credit rating agencies.

Icra upgraded ratings of 303 entities, reflecting an improvement in the credit profile of 10% of its portfolio, the highest pace of upgrades in a decade. In the April-September period, there were 163 downgrades by Icra, much lower than the 483 downgrades in FY21 and 584 in FY20.

Icra said the overall rating action trends are a clear marker that the period of economic uncertainty and excessive pressures seen on business and financial risk profiles of entities is most likely over.

According to Crisil Ratings Ltd, the credit ratio in the fiscal first half rose to 2.96 with 488 upgrades against 165 downgrades. The ratio was 1.33 in the previous six months. A ratio of more than 1 indicates there are more upgrades than downgrades and vice versa.

“Most rating upgrades were coming from areas like construction and engineering, renewable energy. Improved pace of project execution and higher capital spending clearly supported the credit profile of these companies,” said Somasekhar Vemuri, senior director, Crisil Ratings Ltd.