Credit quality pressures for India's corporates, which intensified in 2011-12, are expected to continue given the slowdown in demand, says credit rating agency Crisil.
Instances of default by Crisil-rated entities last fiscal increased to 188, the highest in any year. The annual default rate for such entities hit a ten-year high of 3.4 per cent in 2011-12, according to a release from the agency.
An indicator of the pressures was the increase in banks' gross non-performing assets (to 2.9 per cent of advances from 2.3 per cent) and in the quantum of debt restructured (to 3.3 per cent of advances from 2.5 per cent) between March 31 and December 31 of 2011, it says.
Rating downgrades
Crisil downgraded 292 ratings and upgraded 266 ratings in the second-half of 2011-12 as against upgrading of 313 ratings and downgrading of 207 in the first-half. The downgrades were driven by liquidity pressures and weakening demand. One-third of the downgrades were to the default category (‘Crisil D').
Roopa Kudva, Managing Director and Chief Executive Officer of Crisil, says: “Weak liquidity caused by elongation of working capital cycles is the primary reason for the defaults. This trend is likely to persist with slowing demand.”
Highly indebted industries, including textiles, steel, construction and engineering, accounted for a fourth of the defaults. Textile exports have been hampered by weak demand, especially in the eurozone. Steel manufacturers had to contend with higher input prices. Industries dependent on investment demand such as construction and engineering, and industrial machinery have been affected by weak domestic demand, stretched working capital cycles, and high interest rates.
Ramraj Pai, President, Crisil Ratings, said: “The credit quality of India's corporates will remain under pressure given the slowdown in demand. ”
