Global rating agency Moody's Investors Service (Moody's) on Wednesday downgraded Indiabulls Housing Finance Limited's (IBH) long term corporate family rating to Ba2 from Ba1, citing renewed pressure on the cost and availability of funds. The credit rating agency has also changed the outlook to negative from stable.
Moody's said that it does not expect the rating to go up over the next 12-18 months.
The agency also lowered IBH's foreign-currency senior secured rating to Ba2 from Ba1, foreign- and local- currency senior secured MTN program ratings to (P)Ba2 from (P)Ba1.
"The downgrade reflects renewed pressure on the cost and availability of funds for IBH and certain other finance companies in India. This presents a more challenging external environment than Moody's had anticipated," the agency said in a report.
According to Moody's, Indiabulls Housing Finance's incremental cost of funding rose 45 basis points (bps) quarter-on-quarter during June 2019, while the company's balance sheet declined by 7% over the same period. "This rise in funding costs was a key driver for the 28 bps decline in spreads in the same period, although profitability remains comparatively strong relative to its peer group."
"The outlook has been changed to negative to reflect the possibility that the tight funding conditions may persist for some time, which could further pressure other aspects of IBH's credit profile, such as profitability and asset quality," the rating agency said.
Moody's said that the rating downgrade also factors in decline in asset quality during the June quarter, wherein stage 3 loans went up by 57% on a q-o-q basis, albeit from a low base. The rise in stage 3 loans was mainly due to corporate loan segment, it said, adding that "this segment will continue to be a key source of asset quality risk for the company".
"The ratings also reflect the solid capital and profitability of the company, both of which remain relative credit strengths. Capital levels have been strengthening, driven by a decline in the size of the balance sheet and relatively high retained earnings," it highlighted in the report.
Earlier in April 2019, the company had announced a proposal to merge with Lakshmi Vilas Bank, a small bank in India, and get converted into a bank. The proposal is now awaiting regulatory approval from RBI. If approved and consummated, it would be a significant credit positive event for the company, said Moody's.
Meanwhile, shares of Indiabulls Housing Finance closed trade at Rs 551.30 apiece, down 3.90%, on the Bombay Stock Exchange on Wednesday.
Edited by Chitranjan Kumar