Cautiously optimistic credit outlook for FY22: CRISIL
According to CRISIL, high-resilience sectors that have businesses with healthy balance sheets have seen demand return to pre-pandemic levels, and cost-cutting measures have helped increase profitability. And moderately resilient sectors geared towards investment, increased public spending and unlocking measures have contributed to a recovery. In contrast, sectors with low resilience still have a long road to recovery, with the balance sheets of leveraged companies being a constraint for them.
In the second half of FY21, moderately resilient sectors such as automotive components and packaging saw a sharp increase in the credit ratio, driven by an accelerating pace of upgrades, although the ratio of Moderate resilience category credit was less than 1. “Moderately resilient sectors surprised us,” Chhatwal said.
Highly resilient sectors such as pharmaceuticals and agrochemicals, supported by sustained demand, performed well and maintained a credit ratio above 1 even during the worst phase of the pandemic. However, low resilience sectors such as hotels and real estate developers continue to experience more degradation than upgrades, even though the pace of degradation slowed in the second half of the year.
Airlines, airport operators, hospitality and retail, which have a long road to recovery, are among the very sensitive sectors. This category also includes gemstones and jewelers and auto dealers who have so far benefited from the release of pent-up demand.
The rebound in corporate credit quality has benefited the financial sector, where regulatory support through ECLGS and targeted long-term repo transactions (TLTROs) helped control reported gross non-performing assets, such as This is evidenced by the increased efficiency of collection in the second half of the fiscal year. Public sector banks (PSBs) have benefited from capital injections in the past and also went black to a systemic level after five years.
In FY22, bank credit growth is expected to reach 9-10% after mid single-digit growth in FY21. Within the banking sector, the proposed privatization of two PSBs is a key controllable element, apart from the efficiency of fundraising and fundraising capacity, the latter in particular for non-bank financial corporations (NBFCs). During this fiscal year, NBFCs may raise more capital from the banking system due to the regulatory policies of the Reserve Bank of India, but in terms of their credit draw for fiscal 22, CRISIL expects annual growth of around 5% – 6%.
Regarding non-performing assets (NPA), CRISIL said that the banking system’s gross non-performing assets (GNPA) ratio had declined by nearly 100 basis points (one hundred basis points makes one percentage point) to around 7 % during the first nine months of fiscal 21. due to the end of recognition of the NPA. But that will change now.
“The current asset quality cycle will likely be different from what we saw a few years ago,” said Vemuri. “Unlike defaults by larger borrowers in the previous cycle, this time the slippages could come from smaller, more vulnerable borrowers,” he added. For NBFCs, CRISIL expects stressed assets to have risen to ₹ 1.5 lakh crore- ₹ 1.8 lakh crore by the end of fiscal year 21. Real estate finance, micro, small and medium enterprises (MSME), unsecured loans and auto loans are likely to account for the bulk of stressed NBFC assets by the end of March 2021.
For fiscal year 22, the growth-oriented Union budget, which provides for higher infrastructure spending and targeted incentives for domestic manufacturing, outside of an expected normal monsoon and the weak base of the economy. FY21, is expected to result in 11% GDP growth in FY22 and, in turn, improve India Inc.’s credit profiles.
However, the Covid-19 pandemic is still not behind us. And this is quite visible in the caution that Vemuri advises: “The sharp increase in Covid-19 cases since mid-February 2021 and the impact of any strict containment measure on businesses are the main threats to the nascent resumption of demand and could have an impact on credit. unfavorable quality outlook.