Hero FinCorp's local and foreign currency Baa3 issuer rating is placed under review for downgrade. India Infoline Finance's Ba3 corporate family rating, (P) Ba3 foreign and local currency senior secured MTN programme ratings and Ba3 senior unsecured debt rating are placed under review for downgrade.
Muthoot Finance's Ba2 CFR is affirmed and its outlook changed to negative from stable.
Moody's said the rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, volatile oil prices and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets.
The Indian NBFC industry has been affected given disruptions to economic activity from the coronavirus outbreak, which will weaken these companies' credit profiles. Moody's said it regards the coronavirus outbreak as a social risk under its environmental, social and governance framework, given the substantial implications for public health and safety.
The action reflects the impact on Hero FinCorp, India Infoline Finance and Muthoot of the breadth and severity of the shock, and the deterioration in credit quality it has triggered.
"We expect the asset quality of these three companies to deteriorate on the back of rising loan delinquencies and defaults as some customers and businesses will struggle with payments given declining earnings due to the 21-day nationwide lockdown across India," said Moody's Vice President and Senior Credit Officer Alka Anbarasu.
Although Reserve Bank of India's (RBI's) three-month loan repayment moratorium will help borrowers without affecting NBFCs' asset quality classifications, it will also slow the pace at which loan balances are reduced, or even foreclosed on, which in turn will result in some loans performing more poorly than they otherwise will have.
"Despite these risks, we expect Muthoot's asset quality to perform better than the other two companies given its focus on lending against gold jewelry, which is supported by highly liquid collateral, the value of which has appreciated in the past year," added Anbarasu.
However, the profitability of the three companies will also come under pressure because of lower revenues, higher credit charges and higher cost-to-income ratios as business activity declines.
Capital remains a key credit strength for the three companies. Moody's expects the companies' capital reserves to largely remain stable or decline modestly as the companies look to conserve liquidity and avoid expanding balance sheets until funding conditions normalise.
