Ratings caution on IIFCL asset quality

India Infrastructure Finance Company’s (IIFCL) asset quality might come under pressure due to a loan portfolio concentration in the road and power sectors, says India Ratings and Research.  

Many projects in infrastructure are stuck on account of lack of fuel linkages, regulatory and environmental approvals. India Ratings says IFCL’s credit cost could go up in the near term if provisioning goes up in the event of slippages from restructured loans into the non-performing loan category.

India Ratings said IIFCL’s loan book exhibits high concentration, with the top 20 accounting for 253 per cent of equity. Further,  restructured/rescheduled assets were high at 11.7 per cent of loans in 2012-13, up from 5.3 per cent for FY12. Plus, around 65 per cent of the projects IIFCL has funded are under construction. Thus, it is exposed to construction/execution risks, leaving the asset quality vulnerable.

On the financial profile, the rating agency said profitability rose sharply during FY13. Return on assets improved to 3.32 per cent in FY13 from 2.25 per cent in FY12. The betterment in bottom line was led by a higher net interest margin, which rose largely due to higher yields on loans.

IIFCL’s profitability is also supported by low operating costs. Its cost to income ratio was just 2.4 per cent in FY13. The low funding costs stem frome government-guaranteed borrowings. India Ratings has granted a long-term issuer rating of AAA for IIFCL.

The liquidity profile is supported by cash and unencumbered cash equivalents amounting to Rs 3,910 crore (equivalent to 34 per cent of its one-year repayment obligations) in FY13. The tier-I capital adequacy ratio was 17.97 per cent.