Though confronted with international economic stresses, India Inc's credit proportion showed a marked improvement during the second half of FY25, rising to 2.35 times from 1.62 times in H1 FY25, according to a report by CareEdge Ratings published on Tuesday.
The upgrade percentage also saw an increase, at 14% from the earlier 12% during the first half of the financial year. This upward surge was driven mainly by sectors that benefited from robust domestic demand and higher government spending.
On the other hand, the downgrade rate moderated by 200 basis points to 6% on account of issues of asset quality at the NBFCs offering microfinance and unsecured business loans. Besides, pricing pressure hurt smaller units in the Chemical and Iron & Steel sectors, as well as exporters in Cut and Polished Diamonds.
Sachin Gupta, CareEdge Ratings Executive Director and Chief Rating Officer, pointed out that the improvement in the credit ratio reflects the resilience of India Inc.
"Despite this, the path ahead is tough. Implementation of US tariffs can slow down growth in industries driven by exports, particularly ones reliant on discretionary consumption. It could also increase price pressure from economies with similar challenges," Gupta warned.
However, he accepted that trade deals and rupee weakening could bring exporters much-needed succor. "Also, Corporate India's solid, deleveraged balance sheets are a good cushion against external uncertainty," he said.
There was a significant rebound seen in the credit ratio of both the manufacturing and services industries, with the figure increasing from 1.21 in H1 FY25 to 2.06 in H2 FY25. This rebound suggests improving business fundamentals, especially among mid-sized companies targeting domestic markets, amid persistent global headwinds.
Ranjan Sharma, Senior Director at CareEdge Ratings (Corporate Ratings), pointed out the overall strength of the recovery. "The credit ratio improvement was well-spread across both investment-grade and sub-investment-grade buckets, led by mid-corporate companies leveraging strong domestic demand," he clarified.
In addition, the big firms upheld a stable credit ratio, as they continued with their solid performance from earlier intervals. The upgrade trend leaders in sectors were capital goods, the automotive and automobile components, and real estate sectors, which were all supported by rising consumption and continued infrastructure spending.
The service sector also had consistent growth, with hospitality and healthcare continuing with their positive direction. The pharmaceutical sector, however, remained a consistent performer, upholding its well-established stability.
The credit ratio of the infrastructure sector continued on its rising streak, reaching 3.94 in H2 FY25, with transport infrastructure and power contributing the most towards the upgrades.
The Banking, Financial Services, and Insurance (BFSI) sector witnessed a sharp dip in its credit ratio, decreasing from 2.75 in H1 FY25 to 1.07 in H2 FY25, indicating nascent stresses in some lending segments.
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