Moody's Upgrades IIFL Finance's Rating To B1 From B2

Apart from this, the rating agency also upgraded IIFL Finance's foreign currency senior secured debt rating to B1 from B2, and foreign and local currency senior secured medium-term note program ratings to (P)B1 from (P)B2.

The following development are being driven by strong momentum from the company's asset-light model that has improved its profitability, capital and funding, said Moody's, adding, the rating outlook remains stable.

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Moody in its report said that IIFL Finance's off-balance sheet loans rose to 37% of its total assets under management (AUM) as of the end of December 2022 from 21% as of the end of March 2019 (fiscal 2019) and this helped improved its funding, profitability and capital.

Among others, Moody's mentioned, "The transition to an asset-light model has helped improve IIFL Finance' profitability, with the annualized return on average assets increasing to 3.2% for the 9 months ending December 2022

compared with the average of 2% over fiscals 2017-21. While there may be some margin compression as other finance companies replicate the asset-light model, Moody's expects IIFL Finance's profitability to remain higher than historical levels."

Citing the concerns, the rating agency said that liquidity remains a credit weakness, given the relatively low level of liquid assets on its balance sheet. At the same time, the maturities of its assets and liabilities are well matched, particularly in the near-term maturity buckets. The increasing share of home loans will present a challenge for liquidity management given the long tenor nature of the product, it added.

What may move the IIFL's ratings up?

Moody's could upgrade IIFL Finance's ratings if the company, on a sustainable basis, holds liquid assets amounting to more than 15% of its total assets, while keeping asset quality and capital at current levels.

What can lead to down ratings?

Moody's will downgrade IIFL Finance's ratings if the company's asset quality deteriorates, such that credit costs increase to around 4% of loans and/or liquidity deteriorates such that there are meaningful mismatches in the maturity profile of assets and liabilities.

IIFL Finance Limited, headquartered in Mumbai, reported total assets of ₹489.1 billion as of 31 December 2022.