The downgrade is driven by Indiabulls' ongoing challenging access to funding. Governance considerations were also a key driver of this rating action. The company's access to funding remains challenging. The continued decline in on-balance sheet loans is a reflection of its funding challenges.

The proposed merger with Lakshmi Vilas Bank would have provided a vote of confidence on governance, as it would have meant that the company passed the regulator's fit and proper criteria for becoming a bank. Hence, the rejection by the Reserve Bank of India of this proposal on 9 October is a credit negative, Moody's said in a statement.

Meanwhile, the S&P BSE Sensex was up 288 points or 0.75% to 38414.76.

On the BSE, 34.10 lakh shares were traded in the counter so far compared with average daily volumes of 43.42 lakh shares in the past two weeks. The stock hit a high of Rs 215.75 and a low of Rs 195.95 so far during the day.

The stock hit a 52-week high of Rs 976.85 on 16 Oct 2018. The stock hit a 52-week low of Rs 176.6 on 11 Oct 2019.

On a consolidated basis, Indiabulls Housing Finance's net profit fell 24% to Rs 801.53 crore on a 4.5% decline in total income to Rs 3886.12 crore in Q1 June 2019 over Q1 June 2018.

Indiabulls Housing Finance is a mortgage lender. It is India's second largest housing finance company and is regulated by the National Housing Bank.