Moody’s yesterday has downgraded Hero-FinCorp local currency and foreign currency rating from “Baa3” to “Ba1”. They have also revised the rating to a negative outlook.
Let us check the meaning of this rating downgrade.
Moody’s Rating Definitions:
1. Baa means they are considered as medium-grade.
2. Ba means subject to substantial credit risk.
So, we can conclude this from the above ratings that as of now Hero-FinCorp is under “substantial credit risk”
Why rating downgrade has happened?
Moody’s feels that HeroFinCorp’s unseasoned loan book and rapid growth in the past few years may pose risk to asset quality due to economic disruption posed by COVID-19 outbreak.
In the near term, the effect on asset quality will not be easily seen on the balance sheet as RBI has given a 6M moratorium, under which even if the borrowers do not pay debt obligation on time, they will still not be counted as NPA. And we are hoping the economy will revive in one year’s time as the economy is slowly opening up and vaccine hope are around the corner.
However, despite problems in the NBFC from the last 2-3 years, Hero-FinCorp has able to pay all its obligation on time. The strong parentage of Hero Group will offset all the weaknesses, as they can easily able to raise money from banks in case of such a crisis.