Corporate downgrades dip, but stress to continue in FY15: ICRA

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The number of companies that got rating downgrades declined in the last financial year, but a weak economy and a demand crunch continue to exert pressure on their credit quality, says a study.

Although the number of downgrades exceeded upgrades for the third consecutive year, with 602 downgrades and 559 upgrades in FY14, overall, 3.3 per cent companies moved to the default category as against 4.5 per cent in FY13, according to the study by ICRA.

"While both the number and severity of rating downgrades moderated during the last fiscal, pressures on credit quality persisted against the backdrop of sluggish economic activity and the strains on cash flows and profitability due to weak demand growth," ICRA said.

The study is based on the actions of over 7,000 ICRA-rated companies in FY14, it said.

Downgrades as a percentage declined to 9.6 per cent in FY14, after having peaked at 20.3 per cent in FY12, the study said.

The number of companies downgraded from investment grade to non-investment grade came down from 3.3 per cent in FY13 to 1.3 per cent in FY14.

Among investment-grade entities, 0.9 per cent moved to the default category as against 1.4 per cent in FY13.

Upgrades as a percentage of opening issuers increased from 4.7 per cent in FY13 to 9 per cent in FY14, ICRA said.

The report said the decline in inverse credit ratio, which is the ratio of downgrades to upgrades, declined to 1.1 per cent in the reporting year from exceptionally high levels of 3.4 per cent in the previous fiscal and 2.6 per cent in FY12.


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