Bangladesh crisis has limited effect on India Inc's credit quality: Crisil Ratings

Bangladesh crisis limited: Crisil Ratings announced on Tuesday that the recent developments in Bangladesh have not significantly affected India's trade, and there is no expected short-term impact on the credit quality of India Inc.

The agency noted that the impact would vary depending on industry and sector-specific nuances, but does not foresee any immediate risk to India Inc's credit quality. 

However, Crisil cautioned that prolonged disruptions could affect the revenue and working capital cycles of export-oriented industries that rely on Bangladesh as a key demand centre or production hub.

Crisil Ratings also stressed the importance of monitoring fluctuations in the Bangladeshi currency, the Taka.

"Recent developments in Bangladesh have had minimal impact on India's trade. Moving forward, the effect will depend on industry-specific nuances and exposure. We do not anticipate any near-term credit quality issues for India Inc," the ratings agency stated.

Supply chain strain

Sectors like footwear, FMCG, and soft luggage, which have manufacturing bases in Bangladesh, could experience some impact due to initial operational challenges. While most facilities have resumed operations, a full ramp-up and the ability to stabilise supply chains will be critical, Crisil added.

Engineering, procurement, and construction (EPC) companies involved in power and other projects in Bangladesh may face execution delays this fiscal year as a significant portion of their workforce has returned to India. A gradual return of workers is expected, which may result in lower revenue bookings than previously anticipated.

While industries such as cotton yarn, power, footwear, FMCG, and soft luggage might see minor negative impacts, Crisil pointed out that sectors like ship-breaking, jute, and readymade garments (RMG) stand to benefit.

For most other industries, the impact is expected to be minimal.

Modest trade impact

India's trade with Bangladesh is relatively modest, accounting for 2.5 per cent of its total exports and 0.3 per cent of total imports last fiscal year, according to Crisil Ratings. Key exports include cotton, petroleum products, and electric energy, while imports largely consist of vegetable oils, marine products, and apparel.

Bangladesh contributes around 8-10 per cent of sales for cotton yarn exporters, making the revenue profiles of these companies susceptible to disruption. Their ability to shift sales to other markets will be a key factor to watch, Crisil noted.

This analysis comes in the wake of Nobel Prize laureate Muhammad Yunus's appointment as Bangladesh’s Chief Advisor, following the resignation of Sheikh Hasina on August 5 amid mass student-led protests.

(With PTI Inputs)