Icra's downgrading of TCFC debt instruments came close on the heels of Crisil's downgrading of the same. Crisil put TCFC under rating watch immediately after Centurion Bank announced that it would take over the operating business of TCFC. Consequently, Crisil downgraded TCFC.

The revised Icra rating indicates high safety on the prospect of timely servicing of interest and principal. Icra's decision to put TCFC's ratings under watch with developing implications comes over two months after Centurion Bank made the announcement.

Icra's downgrade takes into account the decline in asset quality and increase in non-performing assets (NPAs) of TCFClargely on account of delay in repayment by corporate clients and an overall economic slackness, which has affected business in the commercial vehicle segment. The company has ceased its car finance operations since January, 1998, which would henceforth be done by joint venture set up along with General Motors Acceptance Corporation (GMAC).

Icra feels that this may result in a further decline in the overall quality of asset mix and the collection efficiency in the near future as the performance of the car financing business has traditionally been better than that of corporate asset and commercial vehicle financing business.

TCFC's profitability has witnessed a decline in 1997 on account of decreased yield in business, increased provisioning and income reversals on account of NPAs. Though the borrowing cost of the company also declined in 1997, it was insufficient to cover up for the drop in yields and increased NPA provisioning. TCFC was able to post a profit after tax of Rs 17.88 crore during 1997 onlyafter taking into account the one-time non-compete fee received from the GMAC joint venture.

TCFC has taken steps to enhance collections from the lease and hire-purchase debtors on a proactive basis so as to avoid slippage of existing NPAs and also to prevent fresh generation of NPAs. Though some of the existing NPAs have turned around, and collection efficiencies have shown increasing trends from April, 1998, onwards, Icra has said that the relatively high corporate exposure remains a cause for concern.

Icra has also downgraded the rating assigned to the fixed deposit (FD) programme of Consortium Finance Ltd to A from double-A. The revised rating indicates adequate safety. The downgrade takes into account the decline in profitability of the company due to declining spreads resulting from high borrowing costs, provisioning on NPAs and high expense ratios.