Icra downgrades IFCI's debt instruments,keeps outlook negative

Domestic rating agency, Icra today downgraded the long-term rating on the long-term bank borrowing, bond programme and non-convertible debenture programme of IFCI to A- from A and retained a negative outlook.
The rating agency also downgraded the short-term rating on commercial paper programme of IFCI to A1 from A1+.
"The rating downgrades take into account the continued deterioration in IFCI's profitability and capitalisation ratios. With a negative net interest income (NII) during the first quarter of FY18 and elevated credit provisions, IFCI continued to report net losses in the period," Icra's senior vice president, Rohit Inamdar, said in a note today.

Though the company reported overall capitalisation of 15.2 per cent as on June 30, 2017, its tier I capital at 9.92 per cent was lower than the regulatory minimum of 10 per cent as neither the expected capital infusion from the government nor the divestment of non-core investments have materialised so far during the current fiscal.
The negative outlook on the ratings reflects the rating agency's expectations that the entity's asset quality is likely to weaken further and its NII will remain under pressure given the capital constraints to expand the portfolio.
The company's ability to borrow at competitive rates will be critical for it to extend competitive lending rates, and for the sustainability and growth of its business.

The note said the company's rating outlook may change to stable if IFCI is able to demonstrate large recoveries, raise funds through divestments or improve its capital ratios sufficiently above regulatory levels to fund growth in advances and improve operating profitability.