Outlook stable for India’s EXIM and HUDCO
Singapore/Mumbai: Fitch Ratings has affirmed the ratings of Export-Import Bank of India (EXIM) and Housing and Urban Development Corporation Ltd (HUDCO) at ‘BBB-‘ and described as Stable the Outlooks on the ratings of the two policy institutions.
The Key Rating Drivers used by Fitch to affirm the ratings of EXIM and HUDCO are – IDRs, Support Rating and Support Rating Floor
The ratings of EXIM and HUDCO are underpinned by the policy role that they play in their respective fields of export financing, and social housing and social infrastructure. Their Issuer Default Ratings (IDRs) are equated to that of the sovereign (BBB-/Stable) and their Outlooks also match that of the sovereign. They have not been assigned Viability Ratings, given their policy role.
EXIM and HUDCO are 100% owned by the government, which is represented on their boards to ensure government control over their strategy and operations. They are the only financing and development agencies in their core policy areas, which underpins their importance to the government. The government is also directly involved in the setting of objectives through an annual memorandum of understanding signed with HUDCO.
Between the two, EXIM’s linkage with the government is viewed by Fitch to be stronger than that between HUDCO and the government. This is because EXIM was established by an act of parliament and the government has regularly made capital injections. In comparison, HUDCO is incorporated under the Companies Act. However, HUDCO’s growing focus on its policy role is evident from the increasing proportion of policy-directed lending in its loan book and the rising share of government-allocated tax-free bonds in its funding base.
As EXIM’s and HUDCO’s IDRs are equalised with that of the sovereign, any change in the ratings of the latter could lead to corresponding changes in the ratings of the policy institutions.
Any weakening of the linkages between these institutions and the government, for instance in terms of their policy roles or 100% ownership, could lead Fitch to revise down the government’s propensity to support the two institutions, and their ratings being impacted accordingly. While EXIM’s linkage with the sovereign is likely to remain strong because it is governed by a parliamentary act, the agency does not expect HUDCO’s linkage to the government to weaken in the near term given its recent growing focus on policy-related lending.