The international credit rating agency, Fitch Ratings has revised / changed the Long-Term Issuer Default Rating (IDR) to "B+" from "BB-" assigned to India Infoline Finance Limited ("India Infoline"), a material subsidiary of IIFL Finance Ltd.
Fitch Ratings has also revised/changed the rating assigned to India Infoline's USD1 billion medium-term note (MTN) programme to "B+" from "BB-".
The downgrade and RWN reflect our expectation of increased pressure on IIFL's asset quality, which will weigh on its funding and liquidity. SME loans, developer financing and capital market finance, which Fitch perceives to be of higher risk in current conditions, make up 40%-45% of IIFL's loan portfolio. Another 7% of loans were extended to microfinance at end-December 2019, which may also be more vulnerable in a downturn as borrowers are typically less financially resilient.
We believe that IIFL's exposure to these risker loan segments renders it more susceptible to shifts in market confidence, and in the current environment outweighs the relative resilience of its home loans and gold loans, which make up close to half of the loan book.
IIFL's IDR also reflects its moderate franchise in India's NBFI sector and experienced management team, as well as its appetite for high growth and tolerance for elevated leverage.
We believe IIFL's funding and liquidity access remains weaker than that of other Fitch-rated peers and more vulnerable in times of heightened risk aversion. This is despite the funding mix remaining stable and adequately balanced at present. The liquidity position and contingent liquidity coverage remained broadly stable at end-February 2020 with net positive liquidity gaps and adequate contingent liquidity coverage of upcoming liabilities. However, the company continues to be more reliant on loan assignments and securitisation to fund its portfolio, and existing liquidity buffers can be eroded if the sector's funding strains are prolonged.
A deterioration in asset quality, signs of more constrained funding access, narrowed or negative liquidity gaps or reduced liquidity buffers would lead to negative rating action. Leverage increasing beyond 7x (December 2019: 5.1x) would also add to pressure on the ratings.
The ratings may be upgraded when there is greater evidence that IIFL is able to maintain and improve its funding and liquidity profile without over-reliance on asset sales and securitisation, even as current market constraints continue. This is provided that the company demonstrates reasonably steady collections on its developer financing, SME and microfinance portfolios throughout the period.
Shares of IIFL Finance Limited was last trading in BSE at Rs.79 as compared to the previous close of Rs. 75.45. The total number of shares traded during the day was 49826 in over 575 trades.
The stock hit an intraday high of Rs. 79.2 and intraday low of 74.25. The net turnover during the day was Rs. 3904705.