ICRA Downgrades Religare Housing Developments Finance’s Long-Term Rating and Reaffirms Short-Term Rating; Store ~1%

ICRA has revised the long-term bank line rating and reaffirmed the short-term bank line rating of Religare Housing Developments Finance Corporation Limited (RHDFCL), a subsidiary of Religare Enterprises Limited.

The rating of long-term / short-term bank lines Rs1,200 crore ICRA B+ (negative) / ICRA A4; long-term rating downgraded to ICRA BB and short-term rating reaffirmed; removed from Watch with Negative Implications rating. Short term debt program Rs100 crore ICRA A4; reaffirmed and withdrawn Evaluation of the Watch with Negative Implications program.

At around 10.15am, Religare Enterprises Ltd was trading at Rs139 per share, up Rs1.25 or 0.91% from its previous close of Rs137.75 per share on BSE.

“The long-term rating downgrade of Religare Housing Development Finance Corporation Limited (RHDFCL) takes into account its reduced financial flexibility due to the longer than expected delay in the implementation of the debt resolution plan (DRP) of Religare Finvest Limited ( RFL).RHDFCL is an 87.5% subsidiary of RFL (rated [ICRA]D), which, in turn, is a wholly owned subsidiary of Religare Enterprises Limited (REL),” the company shared ICRA’s rating rationale.

He added that the delay in the implementation of the DRP at the RFL level had a significant impact on the flow of funds from RHDFCL and consequently inhibited the growth of new business for the company. RHDFCL RHDFCL’s loan portfolio has continuously decreased and stood at Rs368 crore as of 31 December 2021 (Rs452 crore as of 31 March 2021).

As a result, asset quality indicators deteriorated with gross non-performing advances (GNPA) of 16.7% as of December 31, 2021 (10.6% as of March 31, 2021). The increase in the absolute number of GNPAs is due to the Reserve Bank of India (RBI) clarifying the IRAC standards in its circular dated November 12, 2021. RBI has given the NBFC time until September 2022 to increase the systems and controls required for the implementation of its instructions on upgrading the NPA in its circular dated February 15, 2022. .5 crore as of March 31, 2021) adjusting for the impact of the November 2021 circular.

The ratings also take into account moderate profitability indicators with a return on average assets (RoA) of 0.1% for 9MFY22 and 1.6% for FY21 due to the high cost of credit of 1.4% in 9MFY22 and 0, 4% in FY21. While recoveries have been good in recent months, supported by prepayments and foreclosures, the asset quality profile is expected to remain under pressure over the medium term given the increasing challenges in the operating environment and the reduction in the denominator.

In the past, the company has paid off all debt securities on or before using loan portfolio inflows and cash raised from the sale of loans.

An improvement in RHDFCL’s credit profile remains contingent on the timely implementation of RFL’s DRP and the subsequent ability of RHDFCL to resume commercial operations while maintaining the quality of its assets. At the same time, a longer than expected delay in the implementation of the DRP and therefore the subsequent resumption of funding lines for RHDFCL may put additional pressure on its already tight liquidity profile.