Moody’s Investors Service has downgraded the corporate family rating and the foreign-currency senior secured rating of Indiabulls Housing Finance Ltd. to B2 from Ba2, citing challenges to funding and governance issues.
Last week, the RBI had rejected the merger proposal of the mortgage financier with Lakshmi Vilas Bank. “The downgrade is driven by Indiabulls’ ongoing challenging access to funding. Governance considerations were also a key driver,” the agency said. “The outlook on all ratings remains negative.”
The merger was crucial for Indiabulls HFC which would have given them access to low cost deposits that a bank can garner.
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“Perceptions of weak governance have an impact on the credit profile by impeding 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,” Moody’s said adding the rejection by the RBI is a credit negative.
The non-banking financial companies are facing challenges in raising funds as banks turned reluctant to lend them due to concerns over their exposure to the real estate sector which is seeing a slump in prices.
Moody’s expect Indiabulls HFC’s balance sheet to contract over the next 12 months as the company looks to conserve liquidity.
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The company’s stock tanked 5.74% to close at ₹197.90 while broader indices ended marginally higher.