Sectors where rating agencies see high credit risk


The sudden shutdown suffered by businesses ranging from airlines and hotels to automobiles could mean heightened credit risk for businesses in those sectors, even after the authorities’ three-week lockdown is lifted.

The lockdown, announced by Prime Minister Modi on March 24 to curb the spread of Covid-19, is due to end on April 16. A recovery in business, even after the lockdown is lifted, could be slow and have a prolonged impact on credit profiles.

Over the past week, rating agencies have identified several sectors in particular where they see lingering risks.

CRISIL Ratings analyzed the impact of the Covid-19 pandemic on companies across 35 sectors, representing total debt of Rs 23 lakh crore in its ratings summary report for the second half of this financial year.

Around 15 sectors, with around Rs 10 lakh crore of rated debt, have been classified as high resilience sectors and another 15 sectors, with Rs 12 lakh crore of rated debt, will have moderate resilience to the downturn in economic activity in the weeks coming soon, the rating agency said..

Five sectors, with around Rs 92,000 crore of rated debt, have the least resilience due to the government-imposed lockdown last week as well as weak balance sheets and high leverage, it said. -he declares. These sectors include airlines, gemstones and jewelry, car dealerships, real estate, and steel.

Airlines and airport operators

Since the beginning of February 2020, international and domestic passenger load factors have fallen by 570 basis points year-on-year and 100 basis points year-on-year, respectively, India Ratings and Research said.

Traffic during the summer season, which is a peak period, will be strongly impacted. For airport operators, this will impact sales from passenger footsteps at airports, India Ratings said.

As airlines and airport operators see their cash flow shrink, they will need more debt financing to meet rent and interest payments, the rating agency said. This could mean that the impact of the lockdown will last well beyond the immediate period when business is completely paralyzed.

India Ratings has estimated that the three low-cost carriers will need additional funding of around Rs 3,500 crore even if the outbreak is contained within the next three months and Rs 14,500 crore if the outbreak persists over the next three months. next 12 months score summary report for the second -half of this exercise


ICRA revised the outlook for the hospitality sector to negative citing the impact of Covid-19.

Hotel occupancies in India collapsed in March 2020 and cancellations are at record highs, ICRA said. “Risk aversion for travel and unfamiliar environments is high,” the rating agency said.

According to the rating agency, the travel and tourism industry will experience one of the longest periods of impact, possibly spanning several quarters, after the wave of Covid-19.


Most original equipment manufacturers and automotive component companies have closed manufacturing units and production is suspended. The country’s two main car clusters, in Pune and Gurugram, have been completely shut down, CARE Ratings said.

“Even though the pandemic is limited, consumer sentiments are expected to be adverse and demand is expected to remain subdued in the first half of FY21, due to fluctuating and uncertain economic conditions,” he said.

While major manufacturers have cash reserves and strong balance sheets to weather the headwinds to some extent until production normalizes, other companies will not be able to survive without government intervention and support. , said ICRA Ratings.

He added that auto volumes would decline 15-16% in FY20 and remain flat in the coming fiscal year, leading to weak credit for a number of companies.

Real Estate And Construction

Developers have been stressed since the collapse of IL&FS in September 2018, which led to a funding crisis for many companies in this sector.

The current situation will aggravate the stress.

Sales and collections will experience moderation in the coming months, ICRA Ratings said. However, the three-month moratorium on term loan repayments announced by the Reserve Bank of India provides reassurance on the overall cash flow for developers during this period.

If the lockdown is prolonged, the impact of the Covid-19 outbreak on economic activity could be deeper and more sustained, leading to a cash flow crisis and the completion of projects for developers, said the ‘ICRA.

According to India Ratings, overall residential demand is expected to decline this year and will be suppressed due to weaker demand, economic growth and supply issues. This will lead to levels of unsold inventory remaining high, he said.

steel fabrication

According to Crisil Ratings, the slowdown in demand in the construction and automotive sectors will significantly impact steelmakers this year.

“A continued slowdown in these sectors due to Covid-19 and other factors, in addition to realization difficulties, could add to credit pressure on steelmakers,” he said.

CARE Ratings said steel production will be affected in the coming month due to staff shortages, especially contract workers and migrant workers who work in factories. “Many businesses are also complaining about understaffing as employees rush to their hometowns amid virus fear. Many factories are operating at lower utilization levels due to understaffing,” he said.


Electricity demand in the country has already been hit and is expected to decline by 20-25% year-on-year during the lockdown period, with industrial and commercial establishments closed and passenger rail services inoperative, according to Rankings. ICRA.

“This would, in turn, negatively impact distribution utility revenues and cash flow in the near term,” the ratings agency said. A drop in consumption by remunerative industrial customers and probable delays in collections are risks for this segment.

ICRA is also concerned that state distribution companies are delaying payments to power generation and transmission companies. This, in turn, could cause power generation and transmission companies to need additional cash, beyond their debt service reserve and unused working capital limits.

Meanwhile, renewable energy projects under construction will face construction delays and disruptions to supply chain and labor availability, ICRA said.

Banks and NBFCs

If stress accumulates in different sectors and consumer segments, rating agencies fear a build-up of bad debts with banks and non-bank lenders.

Rating agencies are seeing a big impact on asset quality, although the RBI’s decision to allow banks to offer a three-month moratorium may delay the impact.

“The RBI’s guidelines allowing banks and non-banking financial institutions to grant a three-month moratorium on loan repayments will mitigate the adverse credit impact that coronavirus has had on their short-term borrowers,” he said. writes Moody’s Investors Service. “However, there are still significant downside risks to asset quality given the shutdown of the Indian economy, the impact of which will only be known a few quarters after the moratorium ends.”

Non-bank lenders could see an impact on asset quality, with added pressure to raise funds in the market, Fitch Ratings said. “The RBI’s recent liquidity and regulatory support measures should help improve the near-term funding environment, but they also underscore the seriousness of the situation and Fitch nonetheless sees continued uncertainty in the months ahead. “said the rating agency.

Fitch added that as the current disruptions add to already existing stress on asset quality, the cycle of bad debts could be prolonged.


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