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Coronavirus pandemic: Fitch Ratings downgrades long term IDRs of 3 NBFCs

These non-banking financial companies are Shriram Transport Finance Company Limited (STFC), Muthoot Finance Limited (MFL) and India Infoline Finance Limited (IIFL).

March 29, 2020 / 08:49 PM IST
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Fitch Ratings has downgraded long-term issuer default ratings of three NBFCs on increasing macro-economic challenges following coronavirus pandemic.

These non-banking financial companies are Shriram Transport Finance Company Limited (STFC), Muthoot Finance Limited (MFL) and India Infoline Finance Limited (IIFL).

The long-term issuer default ratings (IDRs) of STFC and MFL have been downgraded to BB from BB+, while that of IIFL to B+ from BB+.

All their ratings have been placed on rating watch negative (RWN), Fitch Ratings said in a release on Saturday.

Fitch has also placed BB- long-term IDR of Manappuram Finance Limited (MFIN) on RWN.


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"The rating actions reflect increasing macro-economic challenges for the Indian non-bank financial institution (NBFI) sector. These include the growing effects from measures to contain the COVID-19 pandemic, which will compound the tightening in funding conditions for NBFIs in recent weeks," it added.

The RBI's recent liquidity and regulatory support measures should help to improve the funding environment in near-term, but it also underlines the severity of the situation and Fitch sees continued uncertainty in the coming months nonetheless, the global rating agency said.

"Fitch also expects the constraints on business activity to lead to operational disruptions that will directly affect asset quality. This comes on top of existing weak asset quality across banks and some NBFIs, and under-capitalisation in the banking system, which are likely to continue to hamper the growth and funding of the NBFI sector," it said.

Fitch recently revised down India''s GDP growth forecast for the fiscal year ending March 2021 (FY21) to 5.1 per cent, from 5.6 per cent previously, and the risks are skewed to the downside as the authorities attempt to contain the virus.

On the key rating drivers, it said: "The weaker economic outlook and uncertain funding conditions negatively affect our assessment of the sector's operating environment, growth and asset-quality prospects".

The support measures announced by the RBI on March 27 should help address some near-term pressures on reported asset-quality metrics and market liquidity, but will not materially change the anticipated deterioration in underlying borrower repayment capacity.

"We also expect debt markets to remain risk-averse, while banks are likely to be selective when providing fresh funds to the NBFI sector," it said.

The RWN on the ratings reflects sustained uncertainty in near-term, partly stemming from the authorities' measures to contain the spread of COVID-19, Fitch said.

"All four entities have retained funding market access despite market dislocation in recent weeks, but any evidence of increased refinancing risk, weaker funding access, or an outsized deterioration in asset quality could lead to further rating downside for the four NBFIs," the agency said.

The RBI has announced a host of measures for the financial sector to remain healthy with a Rs 3.74 lakh crore liquidity support at a time when almost every economic activity in the country has come to a grinding halt as maintaining social distance is the only preventative measure to help contain the spread of Covid-19.

The deadly virus has taken 25 lives in India so far while nearly over 950 have been tested positive.
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