ICRA downgrades promoter IFCI

ICRA downgrades promoter IFCI

MUMBAI, JULY 6: Credit rating firm ICRA has downgraded long-term and medium-term ratings of IFCI Ltd due to the financial institution's high non-performing assets (NPAs) resulting in income loss and increased provisioning.

ICRA has, however, reaffirmed the short term rating of IFCI at `A1' plus which indicate highest safety. "The downgrade in the long term and medium term ratings factor in the continued high level of npas resulting in income loss and increased provisioning, consistent decline in interest spreads following fall in gross yields, decretion in reserves and lower capital adequacy ratio at 8.80 per cent Times as on March 31, 2000," it said.

The revised ratings also take into account IFCI's role and position in the Indian economy and the large shareholding of the public sector institutions and nationalised banks in IFCI, it said.

ICRA said IFCI's net NPA levels continue to be high at 20.8 per cent as on March 31, 2000, although it has declined marginally from 21.4 per cent as on March 31, 1999. High NPA levels has resulted in income loss leading to a decline in gross yields and has increased the provisioning/write-off requirements over the years.

IFCI's marginal and average cost of borrowing has declined in 1999-00 following decline in interest rates in the economy, it said. However, the decline in the gross yields has been more pronounced than the decline in the borrowing costs leading to a fall in interest spreads, ICRA said. IFCI's profitability in 1999-00 has increased to Rs 59.37 crore from Rs 23.49 crore in 1998-99, despite a decline in the interest spreads due to lower provisioning requirements in 1999-00.

IFCI's accretion to reserves has been negative in the last three years as it has utilised its reserves to make provisions/write offs against NPAs, it said.

IFCI's capital adequacy as on March 31, 2000 was 8.80 per cent, which is lower than the minimum capital adequacy norm of nine prescribed by the RBI. The capital adequacy is higher as on March 31, 2000 as compared to 8.37 per cent as on March 31, 1999, despite a decline in the interest spreads due to lower provisioning requirements in 1999-00.

NBFCs spar with Crisil

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