| India Infrastructure Finance Company Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||
| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable’ rating on the debt instruments of India Infrastructure Finance Company Limited (IIFCL).
The rating continues to centrally factor in the expectation of strong support from the Government of India (GoI), and the comfortable capitalisation and diversified resource profile of IIFCL. These strengths are partially offset by the modest asset quality and average, albeit improving earnings profile of the company. Earnings profile was impacted in the years gone by due to weak asset quality resulting in higher credit costs. However, with lower incremental slippages and most of the legacy weak assets been provided for, credit costs have declined resulting in an improving earnings profile. Nevertheless, sustenance of asset quality and earnings performance is a monitorable. |
Key Rating Drivers & Detailed Description Strengths: Strategic importance to and majority ownership by the central government: IIFCL is strategically important to the government and its public policy initiatives. The company is a key facilitator of financial assistance to infrastructure projects that are critical for economic development. Given the large funding requirement in the infrastructure sector, IIFCL is also expected to play a broader role as a developer of the domestic infrastructure financing market. The company has received continued support from the government via regular equity capital infusion and guarantees on its debt. The government infused Rs 5,798 crore of equity capital in fiscal 2020 and has extended guarantees to around 44% of IIFCL’s borrowings as on December 31, 2022. The guarantees are one of the largest extended by the government to any institution. Furthermore, IIFCL has been permitted to raise tax-free bonds to meet its borrowing requirements. The board of directors include senior officials from the Ministry of Finance, chief executive officers of public sector banks and the National Institution for Transforming India (NITI Aayog). Moreover, IIFCL is the only institution that has been given access to a part of India’s foreign exchange reserves – the company can lend up to USD 5 billion from these reserves to Indian projects for import of infrastructure-related equipment. CRISIL Ratings believes that these factors, along with the government’s 100% ownership of the company, create a moral obligation on the part of the government to support IIFCL, whenever necessary.
Comfortable capital position: Capital position is backed by regular equity capital infusion from the government. The company has received equity capital of Rs 10,000 crore from the government till March 31, 2023, of which Rs 5,798 crore was infused in fiscal 2020. Networth and gearing stood at Rs 12,878 crore and 3.3 times, respectively, as on March 31, 2023. Furthermore, the overall capital adequacy ratio (CAR) stood at 27.7% on the same date.
Diversified resource profile: IIFCL has a diversified resource profile with access to capital markets, loans from domestic and international financial institutions, apart from banks. Total borrowings (including bank overdraft) stood at Rs 43,051 crore as on March 31, 2023. In March 2022, IIFCL raised Rs 1,500 crore via debentures bearing a coupon of 7.17%. Average cost of borrowing was competitive at 6.4% during fiscal 2023 (5.8% the previous fiscal). The increase was largely due to rise in systemic rates. A good portion of the borrowings are backed by sovereign guarantees. Borrowing cost on the non-guaranteed borrowings also remains competitive.
Weaknesses: Modest asset quality: GNPAs have declined to 4.8% as on March 31, 2023, from 9.2% a year earlier, largely aided by write-offs and recoveries. Net non-performing assets (NNPAs) stood at 1.5% of net advances as on March 31, 2023 (3.7% a year earlier). While the share of higher rated exposures has increased significantly over the years, asset quality is vulnerable given the inherent risks associated with the infrastructure sector. Ability of IIFCL to contain any significant weakening in asset quality will remain a key monitorable.
Average, albeit improving, earnings profile: Return on assets (RoA, on an annualised basis) improved to 1.8% for fiscal 2023 (0.9% the previous fiscal) supported by lower credit costs. Profitability remains vulnerable to asset quality and fluctuations in foreign currency rates, as part of the exposure is unhedged. The company’s ability to manage asset quality will remain a key determinant of profitability over the medium term, and this will continue to be a monitorable |
Liquidity: Superior As per the structural asset liability statement as on March 31, 2023, IIFCL had cumulative positive mismatch in the buckets of up to one year. As on March 31, 2023, debt repayments worth Rs 1,153 crore are due over the next six months, against which the company has liquidity of Rs 5,168 crore available. |
Outlook: Stable CRISIL Ratings believes IIFCL will remain strategically important to GoI, and hence, continue to receive strong funding and operational support, given its public policy role in India’s infrastructure-financing space. |
Rating Sensitivity Factors Downward Factors * Diminution in the strategic importance and support extended to the institution by GoI and/or; * Decline in GoI shareholding below 50% |
About the Company Set up in 2006, and wholly owned by the government, IIFCL is the apex institution for financing infrastructure projects in India. The company has received equity of Rs 10,000 crore from the government till March 31, 2023.
IIFCL provides financial assistance to infrastructure projects through direct lending for loans with door to door tenure of 10 years and more. The company also provides take-out finance, refinance to banks and other eligible institutions, invests in bonds of infrastructure projects and provides partial credit enhancement guarantee for bonds of infrastructure projects. As on March 31, 2023, IIFCL had sanctioned financial assistance of Rs 2,13,378 crore for infrastructure projects and the outstanding loans, including refinance to eligible institutions, were Rs 42,271 crore. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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Criteria Details
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