Ratings of Hero FinCorp and IIFL placed under review for downgrade by Moody’s

The Indian Non-Banking Financial Companies (NBFCs) sector has got a set back because of disruptions to domestic economic activity resulting from the coronavirus outbreak. Citing these reasons, Moody’s Investors Service has placed the ratings of two NBFCs viz., Hero FinCorp Ltd. and India Infoline Finance Ltd (IIFL) – under review for downgrade.

The rating agency has placed Hero FinCorp’s local and foreign currency issuer rating under review. Further, IIFL’s Corporate Family Rating (CFR), foreign and local currency senior secured MTN program ratings, and senior unsecured debt rating have been placed under review. Muthoot Finance Ltd's CFR was affirmed and its outlook changed to negative from stable.

According to Moody’s, the current scenario due to the outbreak of the pandemic and the resultant disruptions to the economic activities impacts the credit profiles of the NBFCs. The rating agency further added that the prevailing scenario has triggered the deterioration in credit quality of these NBFCs.

Moody’s stated that Reserve Bank of India’s (RBI) three-month moratorium will slow the pace at which loan balances are reduced, or even foreclosed on thereby resulting in some loans under performing than they otherwise would have. It further added that the negative effects of the RBI’s measures are likely to be offset by the positive macroeconomic effects resulting from the fillip given by the loan repayment moratorium.

According to a senior credit officer at Moody’s, the asset qualities of the NBFCs is likely to deteriorate as there would be customers and businesses who would be struggling with payments due to the nationwide lockdown.