labels: CRISIL
Basel II positive for debt market development: CRISIL news
05 May 2008

New ratings assigned by CRISIL increased dramatically in 2007-08 (FY2008, April 1 to March 31), with the number of ratings assigned in this financial year exceeding the sum of those assigned in the previous four. This increase was driven by the rapid growth in bank loan ratings (BLRs). As of March 31, 2008, BLRs constituted 21 per cent of outstanding CRISIL ratings, up from base of zero a year ago. In FY2008, CRISIL rated bank facilities of Rs.1.92 trillion, representing close to one-eighth of the Indian banking system's corporate exposure.

Close to 60 per cent of the newly-assigned long-term BLRs are in the 'A' and 'BBB' rating categories. This is a landmark for the Indian ratings industry: so far, the lack of bond market demand for ratings below the 'AA' category led to few of these ratings being used.

The rising number of BLRs has now resulted in a fuller distribution, with rating categories below 'AA' being much better populated than before; this moves CRISIL's rating distribution closer to that of the overall credit market. CRISIL believes that this shift presages a significant deepening of India's bond market, as market participants gain comfort with the debt servicing capabilities of many prominent credits that are rated below the 'AA' category.

For existing ratings, CRISIL's modified credit ratio (MCR, the ratio of upgrades plus reaffirmations to downgrades plus reaffirmations) for FY2008 was at 0.97 times; in other words, downgrades outnumbered upgrades during the year. This is the first time in four years that MCR has remained below 1 time for an entire financial year.

This marks a reversal after four years of steadily improving credit quality for Indian corporates. CRISIL expects corporate India will continue to face credit quality pressure because of high input costs and interest rates, coupled-for exporters-with lower realisations because of rupee appreciation.

The reversal, however, comes at a time when companies' financial risk profiles are strong after four years of good performance and capital strengthening. Additionally, the median rating of the existing CRISIL-rated population, in the 'AA' category, is high. For these reasons, CRISIL does not expect any significant increase in defaults among rated companies in the medium term, despite some expected weakening in credit quality.

This edition of CRISIL's Ratings Round-Up contains a detailed analysis of these and other trends, and has CRISIL's estimates of credit quality, going ahead, for various sectors of the Indian economy. With its comprehensive coverage across sectors, it remains an indispensable tool for analysing credit risk in the Indian economy.


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Basel II positive for debt market development: CRISIL