The annual default rate averaged 4.1 percent over the past decade.
However, the report warns that the default rate could rise further as the pandemic-induced relief measures are rolled back and volatile input prices for the industry in general and for entities rated in the sub-investment-grade category. create cost pressures. especially, dominate MSME,
But the overall annual default rate continues to be cushioned by a slant in the rated portfolio mix toward more resilient investment grade grade.
As per the report, the default rate for investment grade ratings has declined as compared to the previous financial year. financial year 2021 while for that sub investment The category has increased.
But for the sub-investment grade category dominated by MSMEs, the default rate rose to 5.24 per cent in FY12 from 3.90 per cent in FY11, as against an average of 6.1 per cent between FY2011 and 2020. of the entities in default in the previous financial year. About 90 percent were MSMEs.
The report cited two reasons for the lower overall annual default rates. One reason is the proactive relief measures announced by regulators and the government, especially loan moratoriums and emergency credit guarantee lines, which eased pressure on credit profiles and prevented defaults to a great extent.
The second reason is the increasing proportion of companies falling in the investment-grade category.
Of the 7,000 co-operative issuers assessed by CRISIL as of March 2022, 55 per cent were in the investment-grade category, compared to 24 per cent in March 2016.
This is primarily due to the high incidence of sub-investment grade-rated entities either becoming uncooperative or exiting ratings after de-rating, when lenders have met the minimum debt required to be rated by credit rating agencies. Limit has been extended.
According to the report, the default rate in investment grade is generally at a low level, averaging 0.5 per cent between FY2011 and 2020, but touched a decade low of 0.03 per cent in FY22, which was already low. It is at a low of 0.17 percent. FY 21.
Somashekar Vemuri, a senior director at the agency, said the recent trends in the default rate reflect a K-shaped recovery, which has been faster and faster for large and medium-sized corporates, while MSMEs have borne a disproportionate impact. Epidemic,
The high level of stressed assets in the MSME loan books of banks and non-banks, and the large number of MSMEs taking advantage of the restructuring schemes are also indicative of their stress. The default rate would have been even higher in the sub-investment grade category, but for relief measures, he said.
According to the report, the increase in default rates in sub-investment grades has not significantly affected the overall default rates over the years due to their falling proportion in the overall rated portfolio.