In the third quarter of the existing monetary year, the credit rating of India Inc enhanced marginally as normalcy seemed to be returning steadily to companies. Domestic rating agency CARE Ratings mentioned that the credit excellent as measured by its ‘modified credit ratio’ (MCR) has enhanced to .96, against .94 in the very first two quarters of the fiscal year. Having MCR above 1 indicates enhancing credit excellent. The improvement in credit excellent, CARE Ratings mentioned can largely be attributed to the measures undertaken by RBI and the government to mitigate the influence of the Covid-19 led disruptions.
The October-December quarter witnessed 75% of the credit ratings getting reaffirmed. “14% of the entities reviewed witnessed rating upgrades v/s 9% in the year-ago period while 11% of the entities saw a rating downgrade from 13% in Q3 2019-20,” the report mentioned.
Credit excellent terrible for banks, autos
Among many industries, information compiled by CARE Ratings showed that 12 of the 31-essential sectors had an MCR of above 1 although for the remaining 19 the MCR was beneath 1. The sectors exactly where improvement was registered integrated agriculture and allied activities, cement, education, electrical equipment’s, electrical energy generation, healthcare, IT, iron and steel, paper and paper goods, pharmaceuticals, rubber and plastic goods and sugar. On the other hand, sectors beneath stress or possessing MCR beneath 1 with deteriorating credit excellent integrated telecom, transportation and storage, genuine estate activities, building, auto, hospitality, NBFCs and wholesale and retail trade.
“The auto sector was already grappling under weak demand conditions in FY20 and the lockdown due to COVID 19 further worsened the off-take affecting the credit profile of the sector,” the rating agency mentioned. Meanwhile, it added that the credit profile of the building sector was mostly impacted by stressed liquidity position, expense more than-runs, delays in project execution, higher receivables amongst other things. “Hospitality was also one of the worst-hit sectors due the restriction imposed on its operations and saw a large number of downgrades,” the report added.
SME fare far better than huge entities
Small and medium enterprises (SME) fared far better than huge companies when compared for credit excellent. Although down on-year basis the MCR of SME segment was nevertheless at 1, indicating stability in the credit profile of these entities. Large enterprises, on the other hand, have been at .94, 3 bps decrease than that in the comparable period of a year ago. “Given the higher share of the large enterprises (81%) in the total portfolio of entities whose ratings and financial position was reviewed in Q3 2020-21, the credit quality pressures of this segment weighed down the overall credit quality,” CARE Ratings mentioned.