Moody’s Affirms Hero FinCorp’s Ba1 Rating, Maintains Stable Outlook Amid Improved Asset Quality

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Moody’s Investors Service has affirmed Hero FinCorp’s long-term corporate family rating at Ba1, maintaining a stable outlook for the non-banking financial company. The decision reflects Moody’s confidence in Hero FinCorp’s stable financial performance and asset quality improvements over the next 12–18 months.

Key Highlights:

Stable Financial Performance Expected: Moody’s projects that Hero FinCorp will maintain stable financial results, supported by India’s economic momentum and the company’s ongoing efforts to strengthen its balance sheet.
Asset Quality Improvement: The company’s gross non-performing loan (NPL) ratio dropped to 5.38% at the end of March 2023, down from 7.5% a year earlier, largely due to write-offs and improved collections. Net NPLs also fell to 2.79%, and the provision coverage ratio improved to 49.6%.
Profitability and Loan Growth: Hero FinCorp’s profitability is expected to remain broadly stable, with loan disbursals rising to ₹36,213 crore in March 2023. The company posted a net profit of ₹457.33 crore in FY23, a turnaround from a loss in FY22.
Capital Strength: The company’s capital position is robust, bolstered by a ₹2,000 crore infusion via compulsory convertible preference shares (CCPS) in 2022, raising its Tier 1 ratio to 19% as of March 2023.
Risks and Challenges: Moody’s notes that Hero FinCorp remains structurally exposed to more volatile asset quality trends due to its focus on small businesses and low-income households, which are more sensitive to inflation and interest rate changes.
Funding and Liquidity: Despite modest liquidity buffers, Hero FinCorp benefits from strong parental support, enabling access to bank and debt market funding.

Moody’s will closely monitor the company’s ability to convert the CCPS into equity, as failure to do so could be credit negative unless offset by new equity capital. Overall, the stable outlook signals confidence in Hero FinCorp’s risk management and capital adequacy in the current economic environment.

Source: Business Standard, Cbonds

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