International rating agency Moody's on Tuesday downgraded Indiabulls Housing Finance with a negative outlook, citing challenges in raising funds.
It downgraded the corporate family rating (CFR) and foreign-currency senior secured rating of the company to B3 from B2.
The foreign and local currency senior secured MTN programme ratings of the company has also been downgraded to (P)B3 from (P)B2.
The rating agency expects the company's asset quality to continue to weaken.
The downgrade and negative outlook reflect our expectation that Indiabulls' access to funding will remain challenging for longer than expected, Moody's said in a note.
The wholesale funding markets remain largely closed to many financial institutions following the imposition of a moratorium on Yes Bank as well as the broader risk aversion currently prevalent in financial markets globally.
There is significant uncertainty around when Indiabulls will regain access to market funding, it said adding the company's reliance on asset sales as the primary source of liquidity to repay maturing obligations will increase.
The company's loan book has been contracting since December 2018, and new disbursements have reduced significantly.
As a result, Indiabulls' profitability will reduce because of lower net interest margins and higher cost-to-income ratios, it said. The housing finance company's asset quality has also deteriorated, with the gross non-performing loans (NPL) ratio registering 1.94 per cent at the end of December 2019 compared to 0.88 per cent at the end of March 2019.
While the bulk of the deterioration has come from the real estate developer book, there has also been a deterioration in the home loans and loans against property (LAP) segments, it said.
The capital remains a key credit strength, with Indiabulls' balance sheet likely to contract over the next 12 months as the company looks to conserve liquidity, the rating agency said.
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