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The credit quality of companies remained strong in the first half of the current fiscal, with credit upgrades outpacing downgrades, rating agencies Crisil Ratings, India Ratings and Research and ICRA said on Tuesday.
Crisil Ratings said it upgraded 506 companies in the April-September period, compared with 184 downgrades, resulting in the credit ratio, or the proportion of rating upgrades to downgrades, rising to 2.75 times from 1.79 times in the second half of the previous fiscal.
India Ratings and Research said the corporate credit profile continued its robust performance with 202 issuers getting rating upgrades in the first half. Large corporates and A-rated corporates witnessed a higher number of upgrades, taking the downgrade-to-upgrade (D/U) ratio to a low at 0.31.
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According to Crisil, banks’ credit growth is expected to remain healthy at around 14% this fiscal, despite moderation from 16% in FY24. The revision in risk weights on lending to some of the faster-growing segments is driving moderation in the credit growth.
“Rating upgrades continued to surpass downgrades, reflecting a resilient domestic growth, supported by the government’s continued policy support towards infrastructure build, revival of rural consumption demand and leaner corporate balance sheets,” said Subodh Rai, managing director, Crisil Ratings. “As many as 38% of the upgrades were from the infrastructure and linked sectors,” he said.
The primary drivers for updgrades include acquisitions by strong sponsors and lower-than-expected debt, particularly in the renewables sector, reduction in project risks with road projects achieving critical milestones, progressive order execution in construction and a healthy order book in the capital goods sector, he added.
Banks’ asset quality metrics are likely to remain benign, with gross non-performing assets expecting to touch a decadal low. While net interest margins are set to compress 10-20 bps this fiscal, low credit costs will support banks’ profitability, said Crisil. For non-banks, growth in assets under management may moderate to 17% this fiscal from 20% last fiscal, as NBFCs recalibrate growth strategies in the unsecured loan book. Traditional segments are expected to expand at a steady pace.
Ind-Ra said during H1FY25, large corporates saw a sharp improvement in rating upgrades. This was supported by the continued robust economic growth amid sound domestic consumption demand, continued government focus on capex spending and strong services growth, said Ind-Ra.
“The corporate credit profile continued its robust performance in 1HFY25, the fourth year in a row. During this period, Ind-Ra upgraded the ratings of 202 issuers, representing 20% of the reviewed portfolio, while ratings of 62 issuers were downgraded,” said Arvind Rao, head of credit policy group, India Ratings and Research (Ind-Ra).
The D/U ratio is expected to moderate marginally in the current fiscal, compared to 0.37 in FY24, he added. “We expect issuer rating upgrades to outpace downgrades in the second half of the current fiscal.”
ICRA said that the overall credit conditions in the corporate and the financial sector have remained conducive over the past three years, which has contributed to a higher proportion of rating upgrades than downgrades.