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India Inc’s debt quality improved sharply in H2FY21: Crisil

India Inc’s debt quality improved sharply in H2FY21: Crisil

Improved demand conditions and a return to positive growth in the Indian economy led to sharp improvements in the quality of company debt, in the second half of FY21, according to rating agency



The credit ratio, the ratio of upgrades to downgrades of company debt, scaled to 1.33 in H2FY21 with 294 upgrades against 221 downgrades, compared to the decadal low of 0.54 recorded in the first half of the previous fiscal, Crisil said in a report on Friday.

The debt-weighted credit ratio, which was the ratio of debt held by firms whose debt ratings have been upgraded against that of firms whose ratings have been downgraded, firmed up to 1.26 in H2FY21 from 0.52 in the preceding half, the report said.

“The impetus to infrastructure development in Union Budget 2021-22, steady farm performance and sustained rural demand, together with rollout of vaccination, hold promise for continued improvement in the credit quality of India Inc. even as the spectre of a second wave of Covid-19 infections looms large,” Crisil said.

The reduction in downgrades was across sectors despite the tapering out of regulatory and policy support measures such as the debt servicing moratorium in August and relaxation of default recognition norms in December last year, it said.

According to a resilience study of 42 sectors in the economy, 34 sectors accounting for 89% of rated debt had fully recovered to pre-pandemic levels while six sectors including aviation and hospitality, which made up 4% of such debt, were still highly sensitive to the Covid-19 resurgence, the report said.

Crisil estimated the Indian economy to contract 8% in FY21, deeper than the 7.7% contraction it had projected in December. The agency forecast FY22 growth at 11% on account of the growth-oriented budget and a likely normal monsoon, apart from the low base effect.

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