Moody's said that the rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, volatile oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The Indian NBFC industry has been affected given disruptions to India's economic activity from the coronavirus outbreak, which will weaken these companies' credit profiles.

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. The rating action reflects the impact on Hero FinCorp, India Infoline Finance and Muthoot of the breadth and severity of the shock, and the deterioration in credit quality it has triggered.

"We expect the asset quality of these three companies to deteriorate on the back of rising loan delinquencies and defaults, as some customers and businesses will struggle with payments given declining earnings due to the 21-day nationwide lockdown across India," says Alka Anbarasu, a Moody's vice president and senior credit officer.

The profitability of the three companies will also come under pressure because of lower revenues, higher credit charges and higher cost-to-income ratios as business activity declines, according to Moody's.

"Despite these risks, we expect Muthoot's asset quality to perform better than the other two companies given its focus on lending against gold jewelry, which is supported by highly liquid collateral, the value of which has appreciated in the past year," adds Anbarasu.

Given the negative outlook, an upgrade is unlikely for Muthoot Finance in the near term. However, the outlook could return to stable if the company's solvency and liquidity remain stable over the next few quarters. Muthoot's ratings could be downgraded if the company's funding and liquidity profile materially deteriorates during the next 12-18 months, the Moody's report said.

Muthoot Finance is the largest gold financing company in India in terms of loan portfolio. It provides personal and business loans secured by gold jewellery, or gold loans, primarily to individuals who possess gold jewellery but could not access formal credit within a reasonable time-frame, or to whom credit may not be available at all, to meet unanticipated or other short-term liquidity requirements.

Shares of Muthoot Finance rose 1.62% to end at Rs 747.25 on Monday, 13 April 2020.