FY13 Transition and Default Study: Corporate Default Rate High at 4.5% - India Ratings

New Delhi, September 24, 2013: India Ratings & Research (Ind-Ra) says the annual corporate default rate in FY13 was at a decade high of 4.5% (FY12: 3.5%) due to a combination of declining demand (both domestic and global), INR depreciation and tight liquidity conditions.

“Issuers, after the initial setback, have started managing their finances better by controlling their inventory positions and operating as per demand conditions. This has reduced the pace of downgrades in FY13,” said Dr. Devendra Kumar Pant, Chief Economist and Head - Public Finance at Ind-Ra.

Ind-Ra’s rating activities in FY13 remained net negative in FY13 (second consecutive year since FY11). In FY13, 9.7% of Ind-Ra rated issuers were downgraded (FY12: 12.3%) while 6.6% (6.0%) were upgraded.  Increased default rate and downgrades impacted FY13 rating stability which declined to 89.7% from 91.6% over FY08-FY12.

“The challenging economic environment will continue in FY14. A recovery driven by ease in liquidity conditions, stability in forex market, along with consumption and demand revival on the back of a favourable monsoon would bolster corporate performance in H2FY14 ,” said Kishore Gandhi, Chief Credit Officer at Ind-Ra.

(Source: Manager – Corporate Communications and Investor Relations, India Ratings & Research -A Fitch Group Company.)