Icra downgrades various debt instruments of IFCI

Rating agency Icra today downgraded various debt instruments of Industrial Finance Corporation of India (IFCI) due to sharp deterioration in it's asset quality.
The rating agency has downgraded the long-term rating assigned to the Rs 10,000 crore long-term bank borrowings, the Rs 8,000 crore long-term bond programme and the Rs 2,000 crore NCD programme of IFCI from A+ to A.
It also revised the outlook on the long-term ratings to 'negative' from 'stable'.
"The rating downgrade is driven by the sharp deterioration in IFCI's asset quality (gross NPAs at 25.8 per cent and net NPAs at 21.4 per cent as on December 31, 2016), and the continued stress on it's loan book with very high proportion of loan book being in the 120-150 days past due (dpd) and under the stand-still clause and hence not recognised as NPAs so far," the rating agency said in a note today.

Given the limited resolution of NPAs and the high proportion of 120+ dpd advances currently in IFCI's loan book, Icra expects the entity's reported asset quality and profitability to weaken further in the near term, unless there the pace of resolution is improved significantly.
With the high likelihood of further slippages, the low provision coverage currently and the limited resolution of existing NPAs, the rating agency expects IFCI's credit costs to remain high in the near to medium term.

It would result in its internal capital generation remaining under pressure, it said.
The agency said with reduced internal capital generation expected in the financial year 2016-17 and 2017-18, it expects IFCI's capitalisation to weaken from current levels.

IFCI may need to raise additional capital or divest some strategic investments to absorb any further asset quality related shocks, it said.