DOWNGRADING OF 116 COMPANIES IN 2016 BY CREDIT RATING COMPANIES IS A CAUSRE OF WORRY

This year debt instruments of 116 companies were downgraded and those of 55 firms were upgraded by the credit rating agencies, reports Business Standard.

At the end of 2016, 97 companies had a junk rating as per the Securities and Exchange Board of India (SEBI). For the period January-May, 42 firms' debt instruments were rated in the default category. The default ratings have increased to its highest in three years with the addition of these 42 firms.

The report said that the debt of all companies listed on BSE and rated by five credit rating agencies was considered. These five credit rating agencies are ICRA, CARE, CRISIL, India Ratings and Moody’s.

The slow pickup in demand and flat earnings in the past few years have deteriorated the financials of Corporate India putting them in a precarious condition.

The last cycle of downgrades was started in 2009-2010 after the global recession triggered by the collapse of Lehman Brothers.

The sectors significantly hit this time are banks and telecom. Rating agencies have downgraded the debt instruments of IDBI Bank, Central Bank and Reliance Communication. Idea Cellular rating has been put under watch and Reliance Communications was downgraded to default by the two rating agencies.

The total debt of these four firms is over Rs 1 lakh crore.

The sharp increase in non-performing assets (NPAs) have crippled the banking sector in the past few years. Many PSU banks had seen a significant fall in credit growth.