India’s credit quality outlook remains positive despite global uncertainties, says Crisil

Crisil Ratings reported a credit ratio of 2.64 times for the second half of fiscal 2025, slightly lower than the 2.75 times recorded in the first half, signaling continued resilience in India’s corporate sector and therefore, credit quality. The ratio, reflecting 423 upgrades against 160 downgrades, underscores the positive impact of domestic tailwinds, including urban consumption growth and infrastructure spending, amid global economic challenges.

The reaffirmation rate rose to ~83%, surpassing the 10-year average, indicating stable credit quality. Upgrades, though moderating to 12.2%, remained above the decade average, driven by infrastructure-linked sectors like construction, capital goods, and secondary steel. Downgrades fell to 4.6%, primarily in export-oriented industries such as specialty chemicals and textiles, affected by global demand slowdowns.

Subodh Rai, Managing Director of Crisil Ratings, highlighted India Inc.’s robust balance sheets (median gearing at ~0.5x) and low capex intensity as buffers against external shocks. He projected median revenue growth to improve to ~8% in fiscal 2026, fueled by consumption-led sectors, while EBITDA margins stabilize amid benign commodity prices.

However, global risks persist. The U.S. trade policy shifts and reciprocal tariffs pose sector-specific challenges. Smartphones face high vulnerability due to U.S. market dependence, while steel, aluminium, and textiles may see moderate impacts from dumping risks. Sectors like pharmaceuticals and capital goods are expected to remain resilient.

The banking sector is poised for stable growth, with advances likely to rise 12-13% in fiscal 2026, though net interest margins could dip due to faster loan repricing. Non-banking financial companies (NBFCs) may see 15-17% AUM growth, supported by diversified funding and revived bank lending.

Somasekhar Vemuri, Senior Director at Crisil Ratings, cautioned against global uncertainties and elevated household debt, particularly in unsecured loans. He emphasized the government’s role in mitigating dumping risks through tariff policies.

Crisil’s outlook remains optimistic, with upgrades expected to outnumber downgrades in fiscal 2026, reinforcing India’s economic resilience despite external headwinds.

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