ICRA has downgraded IFCI to the risk-prone category for short-term and inadequate safety for medium-term and long-term ratings from A2(+), MA and LA(-) to A4, MB and LBB, respectively. The revised short-term rating indicates risk-prone and the medium and long-term ratings indicate inadequate safety. The revised ratings have been placed on rating watch with negative implications, it stated in a press release.
IFCI chairman VP Singh termed the revision of the rating hasty and its timing as unfortunate. He said he had met a number of bank chiefs and some creditors and after presenting the latest status report on the FI had been assured of their support.
Government officials said the indications were that IFCI could raise may be Rs 2,000-3,000 crore by securitising some of its good assets with banks. This would help it to at least meet all its interest liabilities, they said, though they expressed deep concern at the worsening fortunes of the FI. However, they ruled out further financial assistance that IFCI has been asking for.
It is reliably learnt that ICRA held back its move for a month. ICRA had placed IFCI on rating watch in September 2001, as it was taking various measures to restructure its liabilities and improve its financial fundamentals.
For the rating review, ICRA has taken into account the likely response of the sovereign authorities to support IFCI. The revised ratings factor in IFCIs efforts, duly supported by the government due to IFCIs position in the Indian financial system, to restructure its liabilities. As part of this, the government has already implemented a financial package, with Rs 1,000 crore in all to improve IFCIs capital adequacy.
The revised ratings also take into account the continued pressure on liquidity due to asset liability mismatches, and low recoveries from assets due to high NPAs resulting in delays in meeting some of its obligations.
High NPA levels have resulted in income loss and have increased the provisioning/write-offs over the years. For the first nine months till December 2001, IFCI reported a negative net income with interest expenses higher than the total income. Considering the operating expenses and provisioning for NPAs, the reported net loss of Rs 489.58 crore during this period was significantly higher than the reported loss of Rs 265.93 crore for the full year ended on March 31, 2001, it noted.
Mr Singh said it seemed ICRA was relying more on external opinion and did not recognise the positive developments in the institution. He said efforts were on to restructure its portfolio after an analysis by PricewaterhouseCoopers, and was now working out a plan of action with McKinsey. Its incremental cost of funds had also come down from 12 per cent last year to 10.4 per cent. It was reorienting its business policy towards more fee-based activities, but matters like seeking a strategic partner took time.
He said the negative net income stemmed from having to provide for fresh NPAs, and that means to meet its interest liabilities were also being evolved.