Credit Rating Agencies (CRAs) have been an integral part of India’s financial landscape since the 1980s, operating under the regulatory purview of the Securities and Exchange Board of India (SEBI) Regulations. Presently, six reputable credit rating agencies are registered under SEBI, underscoring the importance of these institutions in the Indian financial ecosystem.
India’s credit rating industry has steadily evolved over the years, marked by increased regulations and heightened transparency. This evolution serves a pivotal role in empowering investors with essential insights into the creditworthiness of issuers, enabling informed investment decisions.
Notably, the credit profile of Corporate India remained resilient during the first half of 2023, despite a slight dip in the number of rating upgrades. However, the scale tilted in favour of upgrades, surpassing the count of downgrades. A particular rating agency revealed that the credit ratio, denoting the proportion of upgrades to downgrades, in the initial half of the fiscal year stood at 1.91, down from 2.19 in the latter half of the preceding fiscal year. This period witnessed an impressive total of 443 corporate upgrades, compared to 232 downgrades.
Although the upgrade rate saw a marginal decline, settling at 12.7 percent from the previous 13.46 percent, it notably outstripped the decadal average of approximately 10 percent. The surge in upgrades was chiefly driven by anticipated increased cash flows during the fiscal year, especially within sectors tethered to domestic demand and those reaping the benefits of substantial government expenditures. Notably, industries such as infrastructure, services, and consumables contributed to sustaining the overall high upgrade rate.
Furthermore, CRAs noted that the downgrade rate edged up within export-oriented sectors, partly mitigated by robust balance sheets that cushioned the repercussions of heightened overseas risks.
One of the credit rating agencies pointed out a noteworthy trend: numerous entities within the financial sector are experiencing enhanced credit profiles. This upswing results from their consistent credit growth, stable asset quality indicators, and effective equity capital mobilisation. The positive momentum has yielded numerous upgrades, particularly within the microfinance segment.
The dynamics within India’s corporate credit landscape underscore its resilience and adaptability, offering optimism for the future and investment opportunities in the ever-evolving financial sector.