Debt quality index gains nearly three point to close FY22 at 92.24

Reflecting an improvement in corporate credit health, the CareEdge Debt Quality Index (CDQI) showed a notable rise in FY22, from 89.51 in March 2021 to 92.24 in March 2022. This was largely driven by upgrades in rated debt, enhancements in rated debt of higher-rated entities and reduction in debt of a large defaulting NBFC on restructuring.

The reading on the index was 89.32 in March 2020, around the time of onset of Covid-19 pandemic (first wave).

The CDQI saw an improvement in all the last five months of FY22. The March 2022 index rose to 92.24 from 91.96 in February 2022, due to the rating for debt of a large power finance company and enhancements in rated debt of other highly rated entities, the rating agency said in a statement.

The index denotes the quality of debt that can be interpreted over time and juxtaposed with other developments in the financial sector. The CDQI captures, on a scale of 100 (index value for the base year FY12), whether the quality of debt is improving or declining. Intuitively an upward movement indicates an improvement in the quality of debt benchmarked against the base year.

The dataset comprises 1,639 companies from our portfolio of 2,980 companies as of March 2012. Currently, the volume of debt of the sample companies stands at Rs 45.2 trillion in March 2022.

As it is contemporary with minimum time lags, the health of the debt and credit markets is encapsulated on a near-real-time basis, CARE said.