Moody’s Downgrades IIFL Finance To B2
A monitor displays Moody’s Corp. signage on the floor of the New York Stock Exchange (NYSE) in New York, U.S. (Photographer: Michael Nagle/Bloomberg)

Moody’s Downgrades IIFL Finance To B2

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Moody's Investors Service on Monday downgraded IIFL Finance Ltd.’s corporate family rating by a notch to B2 from B1 on the company's asset quality concerns.

Obligations rated B2 are considered speculative and are subject to high credit risk.

The global rating agency has also downgraded senior secured debt rating to B2 from B1, and senior secured medium-term note programme rating to (P) B2 from (P) B1, Moody's Investors Service said in a statement.

However, the rating outlook has been changed to stable from rating under review.

The statement said the downgrade of IIFL Finance's ratings reflects Moody's expectation that the company's asset quality and profitability will deteriorate as loan delinquencies and defaults increase.

This weakening will be driven by declining earnings and cash flow at its customers due to the deep coronavirus-led economic contraction, it said.

"Loans to small and medium-sized enterprises, real estate developers and micro-finance companies -- segments that represent about 40% of its assets under management -- are at the greatest risk of a deterioration in asset quality, given the disruption to their business activities and their limited balance sheet liquidity," it said.

At the end of June 2020, about 50% of these loans were subject to repayment moratoriums, compared to about 30% for IIFL Finance's total loan book, it said.

In line with its industry peers, it said, IIFL Finance would restructure loans to borrowers whose businesses and earnings have been affected by the coronavirus outbreak.

The longer and deeper hit to India's economic activity, the greater the negative financial impact on borrowers, leading to an increase in non-performing loans, it said.

However, it said, the increase will be gradual as loan restructuring will prevent an immediate sharp increase in non-performing loans.

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