Credit Quality of Companies Remains Strong in First Half of FY25 With Upgrades Outpacing Downgrades

Credit Quality of Companies Remains Strong in First Half of FY25 With Upgrades Outpacing Downgrades

The credit quality of companies in India showed resilience in the first half of FY25, with credit rating upgrades surpassing downgrades, according to rating agencies Crisil Ratings, India Ratings and Research (Ind-Ra), and ICRA. Crisil Ratings reported 506 credit upgrades in the April-September period compared to 184 downgrades, resulting in a credit ratio of 2.75 times, up from 1.79 times in the second half of the previous fiscal.

Ind-Ra also observed a solid corporate credit performance, with 202 issuers receiving upgrades, particularly large and A-rated corporates, bringing the downgrade-to-upgrade (D/U) ratio to a low of 0.31. Crisil predicts that banks’ credit growth will remain healthy at 14% for FY25, despite a slight moderation from 16% in FY24 due to revised risk weights on lending to faster-growing segments.

Subodh Rai, Managing Director at Crisil Ratings, attributed the consistent credit upgrades to resilient domestic growth, government policy support for infrastructure, a revival in rural consumption demand, and leaner corporate balance sheets. Infrastructure and related sectors accounted for 38% of the upgrades, driven by acquisitions, lower-than-expected debt levels, progress in road projects, and a robust order book in the capital goods sector.

Banks are expected to maintain stable asset quality, with gross non-performing assets (NPAs) reaching a decadal low. While net interest margins may compress by 10-20 basis points, lower credit costs will support profitability. Non-banking financial companies (NBFCs) are likely to see growth in assets under management moderate to 17% from 20% last year as they adjust strategies for unsecured lending.

Ind-Ra noted that large corporates saw a significant improvement in ratings during H1FY25, bolstered by robust domestic demand, government capital expenditure, and strong services sector growth. Ind-Ra upgraded the ratings of 202 issuers, representing 20% of its reviewed portfolio, while downgrading 62 issuers. The D/U ratio is expected to moderate slightly in the second half of the fiscal year.

ICRA added that credit conditions in both the corporate and financial sectors have been favorable over the past three years, which has resulted in a higher proportion of upgrades compared to downgrades.