A press release issued by the rating agency on Monday said that the revision in ratings reflect the negative outlook on Hudco's asset quality on account of deteriorating fiscal profile of the state governments and the inherently weak finances of most of its borrower agencies. "The rating also factors in the low profitability of Hudco's operations, high gearing and low interest coverage. These factors are partly offset by ownership of and the continued support from the Government, as evidenced by increased equity infusions, fiscal concessions and the proposed hike in lending rates," the release added.

Incidentally these ratings downgrade comeswithin weeks of Hudco declaring a 118 per cent increase in sanctions in fiscal year 98-99. Its total financial assistance towards infrastructure as well as housing projects in this fiscal more than doubled to touch Rs 6,666.67 crore, up from Rs 3,061.8 crore in the previous year.

Hudco has also clocked a 105.43 per cent increase in its financing for urban infrastructure projects with its total financing for infrastructure projects having risen to Rs 2,649.75 for the financial year ended March 31, 1999, as against Rs 1,289.85 crore financed in 1997-98.

The Centre had earlier raised its authorised capital in Hudco to Rs 1,250 crore from Rs 385 crore and during the 98-99 fiscal year, it provided an additional equity of Rs 192 crore with another Rs 321 crore earmarked for the year 1999-2000.