Credit rating agency Icra has downgraded Indiabulls Housing Finance Ltd’s (IBHFL) ₹1.12-trillion long-term debt programme to AA+ citing increased challenges for non-banking finance companies (NBFCs) and housing finance companies (HFCs) owing to higher costs and tighter availability of funds.
“The rating revision also factors in the challenges in terms of maintaining the asset quality, given the continued slowdown in the real estate sector because of subdued sales and increasing funding challenges," the agency said.
Icra noted that the company has hitherto maintained a healthy asset quality, despite some deterioration in Q1 FY20 (gross non-performing assets of 1.47% of assets under management (AUM) as of June 2019, up from 0.88% as of March 2019).
Going forward, Icra said, Indiabulls Housing Finance’s ability to achieve timely exits or refinancing of the real estate exposures would remain important for maintaining the asset quality.
“IBHFL’s healthy liquidity position, with on-balance sheet liquidity of ₹28,511 crore (24% of total assets) as on 30 June, 2019, provides comfort," it said.
According to the rating agency, the rating remains under watch with developing implications in light of the merger proposal between IBHFL and Lakshmi Vilas Bank (LVB). While the scheme has received approval from the Competition Commission of India, key approvals from the regulators, including the Reserve Bank of India (RBI), are still pending.
“While IBHFL today has a strong market position in the HFC space and is among the larger HFCs, on conversion to a bank, it will be a relatively mid-sized bank. Further, the financial risk profile of the merged entity is expected to be weaker than the current financial profile of IBHFL (consolidated), at least in the shorter term," it said.
Icra will reassess it once greater clarity emerges on the said transaction and the financials of the merged entity.