While the downgrades reflected the general economic slowdown, non-banking finance companies (NBFCs) were harder hit because of non-payment of dues by their borrowers, sources in Investment and Credit Rating Agency (ICRA) said.

Industry sources estimate that dues to NBFCs from the corporate sector was in excess of Rs 500 crore. While finance companies are already passing through a troubled phase since the CRB capital markets episode, their problems have been compounded by the mounting dues from their debtors, which again impinge on their ability to retire their (NBFCs) own liabilities.

ICRA officials said large scale downgrades not only indicated the repayment ability of the companies concerned but also their ability to withstand the prevailing economic pressures.

Reflecting the gloom in the industrial sector, the ratings by the variousagencies show that the quality of debt instruments of high profile companies have dropped from moderate levels to risky levels.

ICRA had recently downgraded KND Engineering's non-convertible debentures (NCDs) from `A-' to `BB-', implying inadequate safety. Torrent Gujarat Biomedical's partly convertible debentures (PCDs) have been scaled down to `BB-' from `BBB+' (moderate safety).

Similarly, Crisil has downgraded debts of Timex Watches (partly convertible debentures (PCDs), Usha Beltron, Essar Shipping and Essar Oil and Ashok Leyland to inadequate and marginal safety levels from moderate safety.

Companies hit by Care downgrades are Garware Polyester, Ceat Finance and Peerless Abasan Finance.

In contrast to earlier trends, more manufacturing companies figure in the downgrades list. Rating agencies' officials said that they were now paying more attention to the corporate sector which is raising funds through public fixed deposits (FD's).

FDs are a favourite mode of raising finances for themanufacturing sector as it is quicker. Since they offer liquidity within one year at attractive interest rates, the investors also prefer to deploy their funds here.

Bank FD rates vary from nine per cent per annum to 12.25 per cent for a one year deposit, corporates offer coupon rates between 11 per cent to 15 per cent while the actual yields vary from 11.3 per cent to as much as 17.8 per cent. NBFCs offer rates somewhere in between the two levels.

Sources said that though the Reserve Bank of India has tightened its grip on NBFC's, on the flip side it has led to NBFCs restricting their exposure to risky securities. "They have a much better and more mixed portfolio," said a source.

Downgrades however have the negative effect of creating panic among investors who are not able to correctly interpret the ratings, sources added.