Rating agency ICRA on Thursday downgraded the long-term rating on the long-term bank borrowing, bond programme and non-convertible debenture programme of public sector lender IFCI from ‘A’ to ‘A-’, citing deterioration in profitability. It has retained IFCI’s long-term rating at negative. ICRA has also downgraded the short-term rating on commercial paper programme of IFCI to ‘A1’ from ‘A1+’. Rohit Inamdar, senior vice-president, ICRA, said the rating downgrades take into account the continued deterioration in IFCI’s profitability and capitalisation ratios. “With a negative net interest income (NII) during Q1FY18 and elevated credit provisions, IFCI continued to report net losses in Q1 FY18,” he said. Though the lender reported overall capitalisation of 15.2% as on June 30, 2017, its tier I capital at 9.92% was lower than the regulatory minimum of 10%, as neither the expected capital infusion from the government nor the divestment of non-core investments have materialised so far during the current fiscal, ICRA said. The negative outlook on the ratings, ICRA said, reflects its views that the entity’s asset quality is likely to weaken further and its NII will remain under pressure given capital constraints to expand the portfolio.

“Further, with elevated credit provisions, the overall profitability and capitalisation will remain dependent on the extent of recoveries, divestment and fresh capital infusion. Also, IFCI’s ability to borrow at competitive rates will be critical for it to extend competitive lending rates, and for the sustainability and growth of its business,” the agency said. ICRA also said the slower progress on these issues will be a rating negative that could lead to a further downgrade in ratings. “Conversely, the rating outlook may change to stable if IFCI is able to demonstrate large recoveries, raise funds through divestments or improve its capital ratios sufficiently above regulatory levels to fund growth in advances and improve operating profitability,” the agency said.