ICRA Downgrades IFCI’s Debt Instruments As Bad Loan Outlook Worsens
IFCI’s woes worsen as ICRA downgrades long-term ratings of bonds, NCDs.
Credit rating agency ICRA Ltd. downgraded multiple debt instruments of IFCI Ltd. after the state-run financier's balance sheet woes aggravated in the April-June quarter.
The rating downgrade takes into account the continued deterioration in IFCI's profitability and capitalisation ratios, said Rohit Inamdar, senior vice president of ICRA, in a media statement. The local unit of Moody’s cut IFCI’s long-term rating on bank borrowing, bond and non convertible debenture programs by a notch to A- from A earlier. The short-term rating of IFCI’s commercial paper was pulled down to A1, from A1+ earlier, the statement said. The 'A' rating by ICRA represents instruments with “low credit risk”.
The rating agency also maintained the long-term outlook on IFCI’s rating as negative. ICRA expects that “the entity’s asset quality is likely to weaken further” and its net interest income will remain under pressure due to capital constraints.
IFCI’s losses more than doubled in the June-ended quarter and loans worth Rs 838 crore turned non-performing. Bad loans on its books soared to 35 percent of total assets, which is even higher than IDBI Bank, that has the worst asset quality among all listed Indian banks.
More than half of the loans that IFCI sanctioned were in violation of norms, the Comptroller and Auditor General had found earlier. The board of IFCI has approved selling its entire 26 percent stake in Tourism Finance Corporation of India as it looks to streamline its focus on core operations.
ICRA noted that IFCI's Tier 1 capital ratio, which is the core capital of a bank, fell below the regulatory minimum of 10 percent to 9.92 percent. This was because neither the expected capital infusion from the government, nor the divestment of assets has materialised so far this year, the statement said.
Further, with elevated credit provisions, the overall profitability and capitalisation will remain dependent on the extent of recoveries, divestments and fresh capital infusion.ICRA Media Statement
However, the rating outlook may stabilise if IFCI is able to make large recoveries, raise funds through divestments or improve its capital position “sufficiently above regulatory levels to fund growth in advances”, ICRA added.
The government of India owns 55.53 percent stake in IFCI as on June 30, according to the shareholding pattern available on the company’s website. IFCI is a systemic financial institution that provides funding for large industrial and infrastructure projects, particularly where the requirements of a project do not suit a regular bank.
Ahead of the downgrade, shares of IFCI closed 1.7 percent higher on the BSE.
