Financial sector keeps the faith, avoids defaults: Crisil

Rating agency Crisil said that none of the financial sector entities rated by it were pushed down to the default grade during the last five years since April 1999.

The agency added that share of non-investment grade categories (BB and below) has also dropped from 30 per cent in March 1999 to 4 per cent in March 2004.

D Thyagarajan, director, financial sector ratings, Crisil, said, "The reasons for the upturn are the changes in the business models of the financial sector entities with significant retail thrust and secular improvement in core profitability on account of lower interest cost, higher treasury profits and improved asset quality."

Of the 85 financial sector entities rated "" which include banks, non-banking financial companies (NBFCs) and primary dealers "" 77 per cent were assigned AA or higher rating indicating high and highest-safety categories in March 2004.

In contrast, only 29 per cent of the non-defaulted rating were in the high and highest-safety categories five years back.

The rating outlook for the financial sector continues to be stable in the medium term, a Crisil release said.

Ninety-three per cent of all the published outlooks in the financial sector ratings by Crisil are stable and the remaining 7 per cent positive in March this year.

A key determinant of the improvement in the rating distribution has been the consolidation among the NBFCs, said Crisil.

The ratings assigned in the NBFC sector realigned from 141 to 39 as on March 31, 2004. "The direct impact of the consolidation in the sector has been the strengthening of the business models of the existing NBFCs, which have been consolidating their position over time," the rating agency said.