Fitch affirms rating for 4 NBFCs, maintains stable outlook for all

The financial condition of Shriram Transport Finance, Muthoot Finance, Manappuram Finance and IIFL Finance is satisfactory, says agency

Fitch has affirmed its ratings for four non-banking finance companies--Shriram Transport Finance (‘BB’), Muthoot Finance (‘BB’), Manappuram Finance (‘BB-’) and IIFL Finance (‘B+’) --and maintained stable outlook.

Fitch said ‘BB’ for Shriram Transport Finance Ltd (STFC) reflects the firm’s established franchise in used commercial-vehicle (CV) financing, seasoned management team, established risk controls, and adequate capital and balance sheet buffers. The proposed merger of STFC with sister company Shriram City Union Finance Limited (SCUF) and parent Shriram Capital will not alter STFC's credit profile.

The combined entity's profitability is likely to improve with moderating asset-quality pressure, improving credit demand and cautious management of margins and operating costs. Management expects some post-merger cost efficiencies, but savings may appear only in the medium term, said the rating agency.

Fitch said ‘BB’ for Muthoot Finance Ltd (MFL’s) reflects the company’s market leadership in gold-backed lending, experienced management, and consistently low credit losses. The company has moderate leverage and a liquidity profile supported by low-tenor loans. The asset quality is supported by MFL's high exposure in loans against gold collateral, at 89 per cent of consolidated loans at end-June 2022.

In commentary on another gold loan player Mannapuram Finance, Fitch said the ‘BB-’ rating is driven by the company’s standalone credit profile and moderate franchise in gold-backed financing in semi-urban and rural markets. It also factors in stable asset quality supported by gold collateral, funding and liquidity profile, and satisfactory leverage. Mannapuram’s profile is counterbalanced by a growing risk appetite, reflected in its evolving business model and compliance lapses in earlier years.

IIFL Finance's long-term Issuer Default Rating of ‘B+’ is derived from its standalone credit profile. It reflects moderate domestic franchise, confidence-sensitive funding and lingering risk in the construction and real-estate loan portfolio, even as overall asset quality continues to recover from the effects of Covid-19. This is partly counterbalanced by acceptable earnings performance, loss-absorption buffers, and a liquidity cushion held to mitigate debt rollover risk, said Fitch.