Debt downgrades touch 3-year high, reflects economic slowdown: Report   

Debt downgrades have touched a three-year high, outpacing upgrades by 2:1 for the January to June period, even as asset quality improved, portending a negative direction in the macroeconomy, reports The Economic Times.

The Indian economy slumped to a five-year low of 5.8 per cent in the March quarter.

Analysing rating agency actions, Prime Database found that downgrades for the period stood at 167 against 73 upgrades, which, though a continual trend, was at a significantly higher ratio than the 71 downgrades to 58 upgrades seen in FY16.

This, despite an improvement in asset quality due to a deceleration in the growth of non-performing assets (NPAs), as shown in the Reserve Bank of India’s Financial Stability Report (FSR) released in June, the ET report said. The FSR said that NPAs till March 2019-end stood at Rs 9.40 lakh crore.

Rating agency executives told the paper that the situation was reflective of the broader economy, and not indicative of a jump in bad loans, as ‘higher downgrades do not necessarily mean defaults’.

The FSR also expects bad loans, the majority of which rests with public sector banks (PSBs), to decline to 9 per cent by March 2020, from 9.3 per cent in March 2019. Public sector held NPAs are expected to also decline to 12 per cent from 12.6 per cent in the same period, the FSR said.

Sanjay Agarwal, senior director, Care Ratings, told ET: "While small companies face a slowdown in business, large companies face a tighter liquidity scenario. This issue may not be systemic but on an individual basis."

"Together with the domestic economy, the global economy is also not in the best of shape. All these factors are manifesting in the number," said Soumyajit Niyogi, associate director at IndiaRatings.