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Feb 18th
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Home Credit Bureau India Crisil: loan default rate to exceed 3.5%

Crisil: loan default rate to exceed 3.5%

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Rating agency Crisil, expects default rate to exceed 3.5% of outstanding loans in the coming days owing to high interest rates and slowdown in economic growth.
"Default rate could be higher than 3.5% given where we are in the interest rate cycle, given the outlook on the economy. Things could get more worse in the next 6 months," Crisil Ratings president Ramraj Pai said.

"Directionally it (default rate) could get weaker than better," he said, adding it would be very difficult to predict exact quantum of the default rate.

At present, annual default rate is less than 3.5% despite unprecedented growth, he said.

Talking about stressed sectors, he said construction, textiles and steel products are at relatively higher risk. Crisil has reached the landmark of assigning ratings for the bank loan facilities of 10,000 companies. A majority of them small- and mid-size corporates from its capital market-centric approach of 410 companies it used to cover 4 years back.
The rapid expansion of bank loan ratings (BLR) to the tune of 38,000 loan accounts with sanctioned limits of approximately Rs 16 lakh crore has strengthened the overall credit culture in India on a systemic basis, he added.
According to Crisil, it has improved transparency, access to funding for companies, availability of independent benchmarks and heightened consciousness about financial discipline.
The availability of such credible and insightful analysis is helping lenders and investors take more informed decisions, thereby significantly improving transparency regarding a large number of companies, the rating agency said.
Importantly, it said, the coverage on smaller companies has brought them to the notice of investors and banks, thereby enhancing their fund-raising opportunities. 70% of rated companies have a turnover of Rs 100 crore or less and are based in 200 Tier II and Tier III towns. About 1,300 enterprises have returned for additional ratings for loans worth Rs 3.4 lakh crore.
The independent benchmarks that ratings provide can also drive a greater momentum in bond market development. 100 firms rated by Crisil for bank loans have since successfully accessed bond markets, enabling them to diversify their funding sources and access cost-competitive funding.
Credit rating reports are helping banks in their credit decision-making. Moreover, at a time when Non-Performing Assets (NPAs) have emerged as a concern for banks, Crisil's in-depth surveillance and detailed review reports are providing early warning signals on the credit quality of the borrower, he added.



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