Mumbai: Domestic credit rating agency Icra today said despite a surge in the number of upgrades in FY16, systemic credit quality continues to be weak with large borrowers in the power, roads, metals and mining sectors continuing to be under pressure.
"Our rating actions in FY16 when seen in conjunction with value of debt upgraded or downgraded, suggest systemic credit quality remains under strain," Icra said in a report.
In FY16, it upgraded the ratings of 785 issuers as against 533 downgrades, it said, adding that there were 7,371 issuers whose ratings were outstanding at the beginning of the last fiscal.
Overall credit quality continues to remain constrained by sector-specific, issuer-specific and structural factors that has resulted in the median credit rating remaining unchanged at Icra BB over the past many years, it said.
Debt value weighted credit ratio stood "significantly depressed" at 0.6 time in FY16. "Weighted credit ratio of Icra-assigned ratings stood significantly depressed at 0.6 times in FY16," it said.
"This suggests that systemic credit quality remains under strain, a fact that is also underscored by the rise in the financial sector's bad loans, the large volume of corporate debt restructured or refinanced, the still-high leveraging levels of a large number of corporate entities, and the large count and proportion of rating downgrades in the investment-heavy sectors," its chief rating officer Anjan Ghosh said.
Of the downgrades, 40 percent were due to factors like weak demand outlook, depressed realisations and worsening of the working capital cycle, while 10 percent were on account of delays in project commissioning and cost over-runs, its head of credit policy Jitin Makkar said.
On a sectoral basis, it said companies in metals and mining, real estate and construction, roads and engineering have faced significant deterioration in the past few years and accounted for 40 percent of the downgrades due to factors like challenging operating environment and weak demand.
Commenting on the government actions on the stressed sectors like power, coals, roads, mining and oil and gas, it said while the measures are positive, a "meaningful improvement in the credit quality" due to it will take longer.
Sectors doing good included auto and auto ancillaries, which was aided by pick-up in demand and a better capacity utilisation, pharma and microfinance institutions, it said.
Global factors which will influence credit quality in the future include price of crude oil and other commodities, relative currency movements, monetary policy actions by central banks, developments in China and Europe, besides the geo-political environment, it said