Average Monthly Rating Downgrades Rise 22% Amid Covid-19 Pandemic: ICRA

Amid the coronavirus (Covid-19) pandemic, the pace of credit rating downgrades has accelerated with average monthly downgrades increasing by 22 per cent in the past few months, ICRA said in a report.

The rating agency said that from its rated portfolio, while the number of downgrades has increased, upgrades have nearly dried up.

Of the 315 negative rating actions taken by ICRA on non-financial sector entities in the period between March 1 and May 15, a majority of them were attributable to the pandemic outbreak.

"Nearly half of these negative rating actions have been downgraded (150), while a significant proportion (122) has also undergone a change in outlook to negative," the rating agency said.

Due to the uncertain economic environment, the rating agency has placed 43 entities on the ratings watch list.

It said negative rating actions have so far impacted only 9.6 per cent of the rated portfolio of corporate sector entities.

Some of the sectors on which a negative rating action has been taken by ICRA include aviation, hotels and restaurants, retail, textile, automotive and real estate.

"With the impact of the pandemic across sectors being multifold, including slowdown in domestic demand and the global economy, supply chain disruptions, foreign exchange rate fluctuations, and commodity price impact, among others; and the general uncertainty with regard to timing of revival, negative rating actions have increased, while upgrades have dried up," the rating agency's Vice-President (Corporate Ratings) Shamsher Dewan said.

Negative rating movements have been more in sectors that were at high risk from the impact of the pandemic.

Out of the top-10 sectors that witnessed a negative rating action since March 2020, a large proportion were those that were categorised as 'high risk' by the rating agency.

Several 'low risk' sectors such as fast-moving consumer goods, sugar, seeds, and utilities have not experienced negative rating action during this period, despite a large portfolio base (over 100 entities), ICRA said.