There may be a further rise in corporate loan defaults despite an improving economic environment as some sectors continue to experience stress and certain borrowers are stopping repayment until banks agree to restructure their accounts, according to rating agency Icra.
The credit profile of Indian companies has deteriorated due to the global financial crisis and moderation of economic growth, it says.
While the macroeconomic indicators were showing signs of improvement, the overall number of defaults could still increase given the challenging environment in certain sectors, Icra said.
In 2008-09, there was an increase in the downward transition of entities rated in moderate (LBBB) and adequate (LA) credit-quality rating categories on the long-term rating scale.
The entities, which are placed at the lower end of the rating scale, have a higher chance of default. Plus, there is an increase in bank loan ratings and the emergence of certain credit culture.
During the five-year period beginning April 2003, the default rates were low on account of buoyancy in economic environment and the structural adjustments made by companies against the backdrop of a changing business landscape, said Icra.
Subsequently, however, the economic environment reported a significant and higher-than-anticipated deterioration, especially during the second half of FY09. It pushed up the default rate.
