Moody’s downgrades IIFL Finance to B2 from B1, outlook stable


Mumbai: Moody’s Investors Service on Monday downgraded IIFL Finance’s corporate family rating (CFR) and senior secured debt rating to B2 from B1, and senior secured medium-term note (MTN) program rating to (P) B2 from (P) B1, and said the outlook has been changed to stable from rating under review.

The ratings agency said the downgrade reflects its 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,” Moody’s said in a release.

According to Moody’s, loans to small and medium-sized enterprises (SMEs), real estate developers and micro-finance companies — segments that represent about 40 per cent of the company’s 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.

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

Moody’s expects IIFL Finance to restructure loans to borrowers whose businesses and earnings have been affected by the coronavirus outbreak, in line with industry peers.

“The longer and deeper the hit to India’s economic activity, the greater the negative financial impact on borrowers, leading to an increase in non-performing loans. However, the increase will be gradual as loan restructuring will prevent an immediate sharp increase in non-performing loans,” Moody’s said.

It warned that IIFL Finance’s profitability will also deteriorate as credit costs increase in line with the deterioration in asset quality.

“While IIFL Finance has increased loan loss provisions against potential asset quality deterioration, Moody’s expects its provisioning coverage will deteriorate as NPLs (non-performing loans) increase,” it said.

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