Coinciding with India’s sharpest gross domestic product contraction, the credit ratio (upgrades to downgrades) of Crisil-rated firms for the first half plunged to 0.54, the lowest in more than a decade, with 296 downgrades and 161 upgrades. Stating that the credit ratio was cushioned by regulatory support to some extent, Crisil said the corporate credit profiles remain vulnerable even as demand claws back amid the COVID-19 pandemic.“While the rate of upgrades plunged as expected with the pandemic crushing demand, the rate of downgrades did not surge as feared,” said Crisil. “That’s because credit profiles were cushioned by proactive regulatory measures by RBI and SEBI,” the ratings agency added. Over the past six months, credit quality trends have clearly brought to the fore sectoral resilience in terms of demand, balance sheet strength and liquidity. High-resilience sectors such as pharmaceuticals actually had a credit ratio of more than one in the first half of this fiscal, led by steady demand and robust balance sheets, Crisil analysts said.On the other hand, moderate- and least-resilient sectors saw downgrades far outnumbering upgrades, because of the discretionary nature of goods and services, and leveraged balance sheets for several of them, they added. “We expect credit quality pressure on India Inc. to persist in the second half of this fiscal,” said Gurpreet Chhatwal, president, Crisil Ratings.“There has been a near-doubling of ratings with a ‘negative’ outlook, and ‘on watch’ in the past 12 months.” “While the moratorium has provided near-term relief, demand recovery for moderate and least-resilient sectors will be protracted. Timely restructuring support from lenders will be crucial to credit quality,” he added. According to Crisil, sectors that will be under close watch include airlines, gems and jewellery, auto dealers, hotels and real estate. Sectors exhibiting moderate resilience include thermal power generators, textiles, retail, and roads and construction. The financial sector, too, will bear the brunt with growth in bank credit seen nosediving to multi-decade lows of 0-1% and assets under management of non-banks contracting 1-3% this fiscal, it said. The one-time restructuring permitted by the RBI could help the asset quality of banks without which, non-performing assets would have touched a two-decade high of 11.5% by the end of this fiscal, it added.