Rationale

 The ratings for Housing and Urban Development Corporation Ltd.'s (HUDCO) borrowing programmes continue to derive significant strength from its sovereign ownership (81% of the equity held by the Government of India (GoI) as of August 04, 2021) and its important role as a nodal agency for the implementation of Government policies in the high-priority sectors of social housing and urban infrastructure. The ratings also draw comfort from the relatively low risk profile of HUDCO's portfolio, given the focus on Government-sponsored urban infrastructure and social housing projects. The credit risks in these exposures are relatively low, given the guarantees and/or budgetary provisions from Central/state governments for debt servicing by the concerned entities. The ratings also factor in HUDCO's comfortable capitalisation level, its diversified borrowing profile and good financial flexibility, given its sovereign ownership, which supports its liquidity profile even though the relatively less risky exposure results in modest earnings. ICRA notes that while the credit risk for HUDCO's loan portfolio is mitigated by the presence of government guarantees and/or budgetary allocations for debt repayments, the weak financial profile of many of the state governments remains a risk, especially given its concentrated exposure to states such as Telangana (TEL) and Andhra Pradesh (AP). Nonetheless, the gross and net stage 3 percentages for HUDCO remain under control and stood comfortable at 4.1% and 0.5%, respectively, as on June 30, 2021 (3.8% and 0.2%, respectively, as on March 31, 2020). Also, while the stage 2 percentage has been volatile with some transitory impact of the challenging operating environment amidst the pandemic, the overdues related to stage 2 accounts as on March 31, 2021 have been cleared subsequently in Q1 FY2022 and stage 2 percentage has reverted to comfortable level of 1.5% as of June 30, 2021.