Moody's affirms Indiabulls HFC's B3 rating; upgrades outlook to 'stable'

The Moody's affirmation is driven by Indiabulls' strong capital, comfortable liquidity, declining profitability and weak asset quality

Rating agency Moody's on Tuesday upgraded the outlook on Indiabulls Housing Finance Ltd's rating to “stable” from “negative”, reflecting a stabilisation in access to funding.

It also affirmed the B3 rating of Indiabulls corporate family rating and foreign-currency senior secured ratings.

The affirmation is driven by Indiabulls' strong capital, comfortable liquidity, declining profitability and weak asset quality.

Capital is the key credit strength, with a tangible common equity/tangible managed assets ratio of 18.3 per cent as of FY21-end. This ratio will remain at these levels over the next 12-18 months, driven by a declining balance sheet, Moody’s said in a statement.

The company's high holdings of liquid assets, at 11 per cent of assets as of December 2021, is also a credit strength. While the share of liquid assets on the balance sheet have declined over the last two years, it remains higher than other large Indian finance companies.

Conversely, there are downside risks to asset quality. Even after significant write-offs over the last three years, its exposure to corporate loans, which are the key source of asset quality stress, remains high. With the overall loan book shrinking, the proportion of corporate loans has been increasing.

Another aspect flagged the decline in profitability, with return on assets of 1.4 per cent for the 9 months ended December 2021 compared to 2.1 per cent in the year ended March 2020. A combination of higher credit costs and lower revenue yields caused this decline. Credit costs will remain elevated over the next 12-18 months, and impact profitability.

Moody's said access to funding remains challenging compared with other large Indian finance companies although it is improving. The decline in the balance sheet has slowed as it has been able to roll over a greater proportion of bank loans. It has also been able to issue bonds in the domestic market over the last six months, it added.