MUMBAI: Aviation and gems and jewellery sectors face high credit risks due to the current business disruptions and prolonged recovery caused by the COVID-19 crisis, according to a report.
Besides these two sectors, microfinance institutions (MFIs) and tourism and hotels industries also face high credit risks, according to the report by ICRA Ratings.
It said that because of the COVID-19 crisis, the credit profile of a large number of sectors and entities has become vulnerable.
"The high-risk sectors -- aviation, gems & jewellery, tourism & hotels, microfinance institutions -- are the ones that face severe business disruption over the immediate term and where the recovery is more likely to be prolonged," the rating agency's Head (Credit Policy) Jitin Makkar said.
The medium-risk sectors that include automobile OEMs (original equipment manufactures) and auto-ancillaries, construction, consumer durables and power, among others, face relatively lower degree of business disruptions and credit risks.
The rating agency, however, expects that the after-effects of the COVID-19 crisis on these sectors may not persist for long.
The sectors that face low risk are agri-products, education, fast-moving consumer goods (FMCG) and telecom.
"These industries are unlikely to face material business disruption, or a material increase in credit risks over the near term, triggered solely by the COVID-19 crisis," Makkar said.
The agency said that amid the current coronavirus-induced crisis scenario, it is undertaking a review of its portfolio of ratings by following an approach that involves risk assessment both at the sector level as well as the entity level.
Aside from undertaking a review of the liquidity position of the rated entities over the near term, ICRA may also redraw its projections for various cases, by assuming that a 'business as usual' operating environment may not return soon.
"Subsequent to our FY2020 ratings action, the current COVID-19 pandemic triggered crisis has led to a widespread deterioration in the credit quality of India Inc.
The credit challenges are overwhelming and would impact the credit profiles of a large number of entities across sectors in an unprecedented manner," Makkar said.
There is a lot of uncertainty as regards the acuteness of the impact and much would depend on how quickly the pandemic is contained, the measures taken by the government to soften the harmful impact, and the dynamics of the individual sectors, he said.
ICRA said the credit quality of India Inc faced headwinds in 2019-20 due to economic slowdown coupled with sluggish consumption and investment demand, which led to increase in rating downgrades.
Ratings of 584 entities were downgraded in 2019-20, reflecting a downgrade rate of 16 per cent which was significantly higher than the past five-year average of 9 per cent.
The volume of debt downgraded in 2019-20 was also high at Rs 7 lakh crore and was more than double the previous financial year's figure of Rs 3 lakh crore.
This was mainly because of the downgrade in ratings of several financial sector entities, including housing finance companies, non-banking finance companies and private sector banks, the rating agency said.