Housing Woes

Dec 31, 2007 (LBO) – Fitch Ratings has downgraded the long-term rating of Housing Development Finance Corporation (HDFC) by one notch to ‘A-(lka)’ from ‘A (lka)’ and also lowered its outlook to negative from stable. “The rating downgrades reflect HDFC’s deteriorating profitability brought on by its inherent interest rate risk, and the escalation of such risk in the current interest rate environment,” Fitch Ratings said in a statement.

“The rating also factors in HDFC’s significant state ownership, comfortable capital position, and the manageable and relatively low ultimate credit risk inherent in residential housing finance.”

“The revision of the Outlook to Negative reflects Fitch’s views on the continuing challenges that will be faced by the bank in arresting its deteriorating profitability over the ensuing 12-18 months, in the prevailing weak macroeconomic environment.”

HDFC has also been hit by low interest directed loans to state employees of 900 million rupees as at September 30.

At the same time, the agency downgraded the ratings of senior unsecured HDFC debentures to ‘A-(lka)’.

It had issued 2005/2010, 2015, 2020 senior unsecured redeemable debentures of 250 million rupees and 2005/2