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09-25-2013, 04:27 AM #1
Corporate defaults touched 10-yr high in FY13: India Ratings
India Ratings has said annual defaults by India Inc reached a decadal high of 4.5 per cent in 2012-13, up from 3.5 per cent in the year-ago period, with as many as 32 issuers defaulting on their credit obligations.
"Credit quality of issuers deteriorated due to the slow pace of both domestic as well as global demand growth, high cost of borrowing and leveraging of corporate balance sheet," the agency said in a report.
The absolute amount which got defaulted is not known and the ratings agency said the default rates are computed on an issuer-basis and not on the amount.
India Ratings said the defaults increased even as RBI cut the repo rate, increased its average fund injection to Rs 559.68 billion in FY13 from Rs 519.55 billion in FY12, and cut the cash reserve ratio by 0.75 per cent during 2012-13.
The report said the average annual default between FY05 and FY13 was 2.6 per cent.
Overall, the number of downgrades continued to be higher for the second straight financial year in FY13, even though the ratio of upgrades to downgrades improved to 0.7:1 from 0.5:1, the report said.
In FY13, 9.7 per cent of the rated corporate entities were downgraded against FY12's 12.3 per cent while 6.6 per cent were upgraded, up from 6 per cent in FY12.
Stating that policy logjam affected economic growth, India Ratings said there were challenges both on the internal (fiscal deficit) as well as external front (current account deficit) during the reporting period.
GDP growth had plummeted to a 10-year low of 5 per cent during 2012-13 while the same stood at 6.7 per cent in the earlier financial year.
The ratings agency said that for the currency 2013-14 financial year, economic environment will continue to remain challenging, adding the industrial activity is likely to remain lacklustre even though a good monsoon will prop up agricultural growth.
The report said there are other green-shoots as well like a pick-up in the US economy and the Eurozone coming out of recession while the Japanese and Chinese economies are also doing well.