Credit rating agency ICRA Ltd. downgraded multiple debt instruments of IFCI Ltd. as the state-run infrastructure lender’s balance sheet deteriorated further in the January-March quarter.
“The rating downgrade considers the continued deterioration in IFCI’s profitability and capitalisation ratios despite the sizeable divestment of non-core investments, resources and cost control measures undertaken by the company during FY2018,” ICRA said in a statement. Negative net interest income, an elevated level of bad loans, surge in credit provisions and limited loan recoveries have resulted in losses for IFCI during the year, it added.
Asset quality continued to worsen in financial year 2017-18 as non-performing assets, as a percentage of total assets rose to 41 percent from 31.9 percent a year ago. Fresh slippages stood at Rs 857 crore in the fourth quarter. Credit provisioning nearly doubled in fiscal 2018 to Rs 2,327 crore. As a result, IFCI reported a loss of Rs 1,756.8 crore before tax payments.
ICRA has also retained its ‘negative’ outlook on the long-term ratings of IFCI. The rating agency expects continued weakness in the lender’s asset quality and profitability due to declining earning assets and high credit costs.
Given the elevated level of NPAs and continued provisioning requirements, IFCI will require sizeable capital/divestment of non-core assets to offset losses.ICRA
Inability to raise capital will put pressure on IFCI’s ability to grow and turn profitable again, ICRA said. That would lead to further weakening of its capital position, it added. The ratings agency may consider more downgrades if earnings continue to decline and capital position weakens further. The ratings may be upgraded if IFCI manages to divest non-core assets to offset the loss.
IFCI’s managing director and chief executive officer Emandi Sankara Rao had said that they expect to recover over Rs 1,000 crore of loans this year. The lender also invited bids from banks, financial institutions and asset reconstruction companies to prune bad loans from its balance sheets.
Raising capital and stepping up divestments would be critical to sustain IFCI's operations and offset losses, ICRA said. It expects incremental slippages to reduce going but the lending business to remain under pressure.