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Moody's downgrades Indiabulls after RBI's merger rejection
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SME Times News Bureau | 14 Oct, 2019
Global credit rating agency Moody's has downgraded the corporate family
rating (CFR) and the foreign-currency senior secured rating of
Indiabulls Housing Finance Limited to B2 from Ba2, after the Reserve
Bank of India rejected its proposed merger with Lakshmi Vilas Bank
earlier this month.
According to Moody's rating rationale, the downgrade was driven by Indiabulls' ongoing challenging access to funding.
"The
proposed merger with Lakshmi Vilas Bank would have provided a vote of
confidence on governance, as it would have meant that the company passed
the regulator's fit and proper criteria for becoming a bank. Hence, the
rejection by the Reserve Bank of India of this proposal on October 9 is
a credit negative," Moody's said.
Besides, the rating agency
reasoned that the "governance considerations were also a key driver of
this rating action. The company's access to funding remains challenging.
The continued decline in on-balance sheet loans is a reflection of its
funding challenges."
The agency also said that "while access to
funding remains challenging, its pool of liquid assets, ability to run
down the loan book and roll over of its bank funding act as a buffer
against this risk in the short-term. However, as the funding challenges
prolong, the liquidity buffers may erode and expose the company to
funding and liquidity risks."
"This is the key driver of the rating action," Moody's said.
Perceptions
of weak governance, Moody's said, have an impact on the credit profile
by impeding access to funding. This is particularly so in the current
context as there has been an increase in lenders' risk aversion towards
Indian finance companies following the default of IL&FS in September
2018.
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