MUMBAI, April 2 Indian companies' profitability
is likely to improve in 2013/14 if banks trim their lending
rates by another 25 basis points, leading to a cut in interest
costs for these firms, ratings agency CRISIL said on Tuesday.
The interest coverage ratio which measures the operating
profitability to service debt will rise to 4.0 times in 2013/14
from 3.7 times in the 2012/13 if lending rates come down by 25
basis points, CRISIL said in a report.
"The reduction in interest rates will also result in a
higher proportion of firms with better debt protection metrics,
thereby benefiting their credit risk profile," it said.
The ratings agency expects the Reserve Bank of India to
further reduce policy interest rates by 25-50 basis points over
the medium term.
In the financial year 2012/13 ending March, the RBI cut the
key policy repo rate by 100 basis points to 7.50
However, banks reduced their base lending rates during
April-February on an average by 20 basis points, CRISIL said.
However, the ratings agency does not expect any significant
revival in investment demand in 2013/14 due to a fallout of weak
demand in the previous year and sees credit quality remaining
vulnerable for sectors such as textile, power and construction.
"Rating downgrades may, nevertheless, continue to outnumber
upgrades over the medium term, given that companies' stretched
working capital cycles are unlikely to improve any time soon,"
the ratings agency said.
Since three years, the median rating for companies has
stayed at 'CRISIL BB' compared with 'CRISIL AA' on March 31,
(Reporting by Neha Dasgupta; Editing by Anand Basu)