"The downgrade of SICOM reflects the deteriorating asset quality and poor returns on its investment portfolio. The company's net non-performing assets (NPA) have exceeded its networth and its investment portfolio has been a drag on its profitability," a CARE release issued on Thursday said.

"HFSL has maintained high return on investment in the fund business and has managed to earn comfortable net spreads in the past although its cost of funds continues to be high on account of higher reliance on fixed deposits and higher pretax dividend expense," the CARE release said.

ICRA: Meanwhile, another rating agency, Icra, has retained the `LBBB-' rating assigned to the bonds of Karnataka State Financial Corporation (KSFC). The rating indicates moderate safety.

"KSFC has been witnessing a downturn in its operations post-1996 on account of the economic slowdown. This has resulted in a reduction of lendable proposals and problems on the recovery and asset quality front. The reduction in income coupled with provisioning needs resulted in KSFC reporting losses for the last two years," an Icra release issued in Mumbai on Thursday said. Icra added that the corporation is trying to improve its performance through various restructuring measures and expects the benefits of these steps to accrue to KSFC in the medium term.

"The future performance of KSFC is linked to the marco-economic recovery, particularly in Karnataka. The corporation's liquidity is comfortable and Icra expects support from the government of Karnataka to be forthcoming, if necessary, to enable KSFC to meet its commitments," Icra said.

Icra has also assigned its highest safety `A1+' rating to the Rs 2 crore commercial paper programme of Machino Plastics Ltd (MPL).

"The rating takes into account MPL's high profitability from operations, conservative gearing and strong coverage indicators resulting in comfortable liquidity," the ICRA press release added.