Pai who is also the author of this report attributes demand slowdown and liquidity as they key reasons for Indian Inc pain. "The problem of liquidity accounts for almost 90 percent of the downgrades. Sectors like power, transport and real estate are getting impacted by these two key issues," he added.
Further, he highlighted that some companies have also been upgraded, but the reason to upgrade them are more company-specific than industry specific.
During the first half of the fiscal, the agency downgraded as many as 478 companies compared to the 417 upgrades, it said.
Also Read: FY13 corp defaults jump to 4.5%, says India Ratings
Below is the edited transcript of Ramraj Pai's interview with CNBC-TV18
Q: Take us through your findings. Is it that the numbers of downgrades are still outpacing the number of upgrades at your end?
A: The number of downgrades continues to outpace upgrades. For four quarters in a row now, the credit ratio, which is ratio upgrade to downgrade, is below 1; we are at about 0.85 or so. The key finding we are seeing that almost 90 percent of the downgrades are because of two key factors; demand slowdown and liquidity.
The problem of liquidity accounts for almost 90 percent of the downgrades. We are seeing quite a bit of stretch on the liquidity issue. Some of the sectors like power, transport, real estate are getting impacted by these two key issues.
We have seen a bit of upgrades as well. But a lot of these upgrades are related to company specific issues; it has not much to do with the industry. Though for some sectors like agriculture, we are seeing some industry level upgrades also.
Q: What is the impact on banks? Obviously, if the credit quality is showing more downgrades, what is your anticipation in terms of non-performing loans (NPL) as a percentage to total assets, if you can compare FY13 to FY14 end?
A: We see NPLs rising from 3.3 percent March '13 to about 4.4 percent. Also, we have now begun estimation of weak assets, which not just looks at NPLs, but also looks at potential assets - what we can call restructured that could flow into NPL. We see that number moving from about 4.3 percent March '13 to about 5.7 percent.
So, the issue is not just in terms of NPLs, but the fact that considering that we have been doing a fair bit of restructuring over the last year-year-and-a-half, some of that is also going to flow. So, if we look at weak assets, we could be looking at 5.7-5.8 percent.
Q: You were talking about upgrades, has it got anything to do with exports, is it that externally oriented sectors are seeing some pressure off?
A: We are seeing initial glimmers in some sectors like textiles - readymade garments or cotton spinning. Some exports sectors and some agriculture based sectors are seeing some upgrades.
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