Fitch affirms IIFL Finance's rating at 'B+'; outlook stable

Fitch sees sufficient headroom at the current rating to absorb further downside risk, says the ratings agency

Fitch Ratings has affirmed IIFL Finance Ltd's Long-Term Issuer Default Rating (IDR) at 'B+', easing downside risk to the company's credit profile due to less adverse economic and funding conditions. 

The ratings agency also removed the rating from Rating Watch Negative (RWN). The outlook is stable. The ratings were placed on RWN in March 2020 and maintained on RWN at the last review in September 2020.

"India's economic recovery remains uneven, with lingering uncertainty around the path of the coronavirus pandemic. We expect reported asset quality metrics to deteriorate further as regulatory loan forbearance and economic support measures taper off. This includes a Supreme Court ruling delaying the recognition of new non-performing assets (NPA). Nonetheless, Fitch sees sufficient headroom at the current rating to absorb further downside risk," the ratings agency said.

"IIFL Finance's rating is driven by its standalone credit profile, reflecting its moderate local franchise and diversified loan portfolio. This is balanced against more opportunistic strategy and execution, exposure to higher-risk loan segments. It has a more market-sensitive funding profile that is less cushioned by contingent funding and liquidity buffers relative to higher-rated peers. Loan collection trends continue to improve, but significant shortfalls persist in several segments. The business loans, construction finance and microfinance remain at greater risk of credit slippage. The three segments together accounted for about 44 per cent of on-balance-sheet loans at end-2020. A proposed sell-down of the construction finance portfolio may reduce on-balance-sheet exposure, but it could still leave a significant proportion of credit risk with IIFL Finance," Fitch further said. 

The pro-forma gross non-performing assets (NPAs) increased to around 2.9 per cent of gross loans by end-December 2020.

The further impairment is likely, particularly as regulatory support measures for SME and construction finance expire over the coming months, it added.