Moody's downgrades Hero FinCorp ratings; outlook revised to negative

Today's rating action concludes the review for downgrade initiated on April 13, 2020, Moody's said in statement

Global rating agency Moody's has downgraded Hero FinCorp Ltd's foreign and local currency issuer ratings from “Baa3” to “Ba1” due to severe impact of economic shock triggered by Covid-19 pandemic.

The outlook has been revised to negative from ratings under review. Indian non-bank finance companies (NBFCs) are expected to be affected by the shock given the extensive disruptions to India's economic activity.

Today's rating action concludes the review for downgrade initiated on 13 April 2020, Moody’s said in statement.

Rating action reflects the impact on Hero FinCorp of the breadth and severity of the shock, and the deterioration in credit quality it has triggered.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets.

Moody's regards the coronavirus outbreak as a social risk under its environmental, social and governance (ESG) framework, given the substantial implications for public health and safety.

Hero FinCorp's asset quality and profitability may weaken as loan delinquencies and defaults increase, as customers and businesses face a drop in earnings and cash flows due to the economic disruptions. Hero FinCorp's unseasoned loan book also poses risks to asset quality, given its limited operating track record and rapid growth in the past few years.

Moody’s said capital is a credit strength of Hero FinCorp, supported by capital infusions from its shareholders. It expects Hero FinCorp's capital will remain largely stable as the company looks to conserve liquidity and avoid expanding its balance sheet until economic conditions normalize.

Hero FinCorp has access to committed capital from its shareholders that is callable by the company before the end of the fiscal year ending March 2021, Moody’s added.