"The outlook on the long term ratings was revised to negative from stable in March 2009, based on CIFL’s increased exposure to real estate, which had exerted pressure on its liquidity position and capital adequacy."
"The company’s financial performance had also been deteriorating, depressed by hefty overheads and slumping real estate sales."
Following a rights issue in the financial year ended March 2009, the company's liquidity position improved. However, this was affected by the crisis and loss of public confidence that affected all finance companies.
In an effort to ease the liquidity stress, CIFL has negotiated with its depositors to renew their deposits.
Meanwhile, CIFL has continued to increase its investments in real estate, which made up 64.86 percent of its asset base as at end September 2009.
The company’s real estate investments are concentrated in two projects that account for an aggregate 95.38 percent of CIFL's investments in this sector."We view these ventures with concern as short-term public deposits are being used to fund long-term real-estate projects," the agency said.
Profits from real-estate investments have been propping up its financial performance.
"However, we also observe that Aspic Homes has not been able to make the requisite payments to CIFL, owing to project overruns and weak real-estate sales."
CIFL's gross non-performing-loan (NPL) ratio worsened to 19.15 percent as at end-September 2009 from 6.33 percent the year before, because the company has diverted its focus to deal with the liquidity crisis.
"As interest-bearing deposits had been channelled to real-estate assets, CIFL's net interest margin had sunk further into the red, from a negative 2.36 percent as at end of March 2008 to a negative 8.07 percent as at end September 2009."
Heavy overheads have also taken a toll on CIFL's financial performance.
The company’s cost-to-income ratio spiked up from 74.62 percent as at end March 2008 to 139.98 percent as at end-September 2009.
CIFL suffered a pre-tax loss of 17.68 million rupees in the first half of the 2010 financial year.
The poor performance had also eroded the Company's capital, which contracted from 256.35 million rupees to 246.91 million rupees over the 6-month span.
CIFL is a small registered finance company accounting for 1.36 percent of the industry’s assets as at end March 2009.