Crisil Ratings on Monday said that the credit ratio, measured as the ratio of upgrades to downgrades, was at 5.52 in the first six months of 2022-23 (H1FY23) with 569 upgrades and 103 downgrades. This is against 5.04 in H2FY22 and 3.77 in FY22.

A combination of strengthening domestic demand, higher realisations leading to better cash flows and continuation of debt-light balance sheets as capex remains low have aided the rise in the ratio.

Crisil said that its portfolio composition has altered with the median rating moving to the BBB category after staying in the BB category till fiscal 2021.

“Around 35 per cent of all upgrades were from the infrastructure sector, which is in a unique position of largely being a domestic story and generally decoupled from global headwinds. Here, upgrades were driven by improved cash flows, completion of crucial project milestones and equity infusion. Over the last few years, increasing share of central counterparties in infra projects has led to more predictable payment cycles providing additional comfort to credit quality,” said Gurpreet Chhatwal, managing director, Crisil Ratings.

The deleveraging trend is expected to continue with the median gearing (debt to equity) expected to touch a decadal low of less than 0.5 this fiscal. Private capex is not likely to pick up substantially in the near term and this has arrested the downgrade, despite some sectors facing challenges of high input costs and rising interest rates.

Bank credit to grow between 14 per cent and 15 per cent this fiscal against 12 per cent previous year, while that of NBFCs and housing finance companies is expected to be 11-12 per cent against 6-8 per cent last fiscal.

Riding on the post-pandemic recovery and the uptick in credit, the gross NPAs of the banks are likely to improve 90 bps year on year to 5 per cent.

“Our credit quality outlook on India Inc remains positive led by resilient domestic demand and impetus from the government’s infrastructure spend. However, persistent high inflation, hike in interest rates and a slowdown in large economies remains a risk and may result in moderation of credit ratio,” said Somasekhar Vemuri, senior director, Crisil Ratings.

Crisil view

■ Ratio of upgrades to downgrades better

■ Most upgrades in infrastructure sector

■ Private capex unlikely to pick up substantially for now