ICRA downgrades ratings for IFCI's bonds on sharp dip in asset quality

State-owned lender may need additional capital infusion

Ratings agency ICRA has cut the rating for Delhi-based state-owned lender IFCI’s bonds and long-term borrowing from “A+” to “A” on sharp deterioration in asset quality.

Its stock was trading flat at 29 per share on the BSE.

The rating downgrade is driven by the sharp deterioration in asset quality with gross non-performing assets (NPAs) of 25.8 per cent and net NPAs at 21.4 per cent as on December 31, 2016. The continued stress on the entity’s loan book has very high proportion of loan book in the 120-150 days past due (dpd) bucket.

In line with the Reserve Bank of India's norms, IFCI’s criterion to recognise assets as NPA will change from March 31, 2017, to 120+ dpd from the current 150+ dpd. There is limited resolution of NPAs and book has the high proportion of 120+ dpd advances. In this backdrop, IFCI’s reported asset quality and profitability may weaken further in the near term, unless the pace of resolution is improved significantly, ICRA added.

IFCI’s ratings continue to be supported by its sovereign ownership, ICRA said.

During nine months ended December 2016, IFCI, in which the government holds 55.5 per cent stake, reported a net loss of Rs 140.59 crore. During FY16, IFCI reported a net profit of Rs 337 crore on an asset base of Rs 36,088 crore. The net profit stood at Rs 225 crore on an asset base of Rs 34,082 crore in FY15. 

IFCI’s reported capitalisation as on December 31, 2016, appears comfortable with Tier I capital at 12.17 per cent and capital to risk weighted assets ratio (CRAR) at 17.65 per cent. The Tier I capital stood at 11.52 per cent and CRAR of 16.9 per cent as on March 31, 2016.

With reduced internal capital generation expected in FY17 and FY18, the entity’s capitalisation may  weaken from current levels. IFCI may need to raise additional capital or divest some strategic investments to absorb any further asset quality related shocks.