Moody's Upgrades Indiabulls Housing Finance

Moody's Investors Service raised Indiabulls Housing Finance Ltd.’s long-term corporate family rating to B2 from B3, citing improvement in its standalone assessment.

The rating agency also upgraded the foreign and local currency ratings on the mortgage lender’s senior secured medium-term note program to (P)B2 from (P)B3. It maintained the stable outlook on the ratings.

The upgrade reflects the improvement in Indiabulls Housing’s standalone assessment, supported by stronger capitalization and a decline in loans at risk, Moody's said in a statement.

In addition, the upgrade considers the company's improving, yet constrained, funding access and uncertainty relating to its pivot to an asset-light business model, it noted.

Moody's said its rating action also considers Indiabulls Housing’s efforts over the past two-three years to improve its corporate governance, including the changes to its board composition and shareholding as well as the significant deleveraging, which has helped limit risks from the company's weak funding access.

CREDIT STRENGTH

Moody's said Indiabulls Housing’s capitalization is a key credit strength.

The company's tangible common equity to total managed assets (TCE/TMA) was at 24.3% as of 31 March 2023, higher than 21.4% a year ago, and its rights issue in February 2024 will improve the TCE/TMA to around 30%, the rating agency said.

The run-down of the company's loan book will also support its TCE/TMA ratio, it added.

ASSET RISKS

Moody's said Indiabulls Housing’s non-performing loan ratio remained stable at 3.4% of gross loans as of September 2023 from March 2023, helped by write-offs and the transfer of stressed loans to asset reconstruction companies.

The rating agency said loans that were more than 60 days’ delinquent, or Stage 2 loans, declined to 6% of gross loans as of the same date from 10% as of March 2023 and 30% as of March 2022, reflecting the decrease in asset risks.

Moody's said India's strong economic momentum and a rebound in the housing sector will support asset quality, but Indiabulls Housing is vulnerable to large defaults due to its concentration in single-name borrowers.

The company’s exposure to corporate loans, which are a key source of asset-quality stress, remains sizable and as of 30 September 2023, the top 20 borrowers accounted for 27.7% of total loans, it added.

The rating agency said the company's annualized return on assets was stable at 1.6% for the first nine months of the fiscal year ending 31 March 2024 from the year-ago period.

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