Rating agency Crisil has warned of companies defaulting on debt obligations as pandemic-induced relief measures are withdrawn, along with the volatile input prices that have been creating cost pressures for entities, in particular those in the sub-investment grade category.


The annual default rate has nearly halved to 2.2 per cent in FY 22, which is marginally higher than the 2 per cent in FY 21 and 4.5 per cent in the pre-covid era. This had been primarily due to timely government and regulatory interventions and also changing portfolio distribution with the median rating moving up. The Government and regulators had introduced measures including loan moratorium and emergency credit guaranteed lines, which eased pressure on credit profiles and averted defaults, to a large extent. Secondly, a larger number of companies are also entering the investment-grade category.


The report states that default rates may move up going forward as relief measures are withdrawn, with volatile input prices creating cost pressures for entities. The overall annual default rate, however, continues to be cushioned by the skew in the rates portfolio mix towards the more-resilient investment-grade category.


As per the report, the default rate for investment-grade ratings declined last fiscal over the financial year 2021, while that for sub-investment grade increased within categories.


However, for the sub-investment grade category, dominated by MSMEs, the default rate increased to 5.24 per cent in FY22 from 3.90 per cent in FY21. The average had been 6.1 per cent between fiscals 2011 and 2020. Further, about 90 per cent of the entities that defaulted last financial year were MSMEs.

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