India’s corporate debt market, reeling under the gamut of issues, has seen its debt quality degrade to a 27 quarter low.
In the April-June quarter of current financial year, the number rating downgrades saw a huge spike. During the quarter, according to the premier rating agency Care Ratings, the downgrades as part of total rating actions stood at an astounding 25.6% -- highest since Q2 of 2012-13. Back then downgrades constituted 27.7% of the total rating action by the agency.
This is also the fifth consecutive quarter when the downgrades as part of total rating actions have increased. In the immediate preceding quarter downgrades made up 18.5% of the rating action – 710 basis points lower than the current figure.
On the contrary, the share of upgrades in total rating actions has shrunk to a mere 7%. This is also the third consecutive quarter when the share of upgrades has shrunk.
In fact, since IL&FS fiasco last the share of downgrades in the ratings actions has outnumbered the share of upgrades in the rating action.
The data also reveals that the marginal credit ratio - ratio of upgrades and reaffirmations to downgrades and reaffirmations – has touched its lowest since at the same level as of Q1 2012-13 when the domestic economy was faced with a slowdown. The current level of MCR, according to Care Ratings is 0.80. The ratio has shown decline for fifth consecutive quarter as well.
“There has been a deterioration in the credit quality of entities rated by CARE Ratings in the first quarter of the ongoing financial year which attests to the prevailing slowdown in the domestic economy,” the rating agency.
The data provided by yet another ratings agency – ICRA - also reaffirms this deterioration. The rating agency’s debt-weighted credit ratio – upgrades to downgrades ratio - is at a multi-quarter low of 0.1.
Indian debt market has been severely affected by the liquidity crunch, which has led to multiple defaults by many firms. Recently, many mid-sized firms have also been facing tough time refinancing their debt, due to high leveraging in their balance sheets. Market insiders, who blame regulator Sebi for not implementing rules in a strict way, are expected the situation to worsen in this quarter.
