ICRA has revised the outlook on the non-convertible debentures (NCDs) aggregating ₹466 crore of Edelweiss Financial Services Ltd (EFSL) to negative, from stable. The credit rating agency, however, reaffirmed the ‘AA (negative)’ rating for the NCD. ICRA, in a statement, said while the ratings have been reaffirmed, the outlook on the long-term ratings has been revised to negative on account of the heightened perceived risk profile of the wholesale lending business, which could impact the asset quality going forward.

“The outlook may be revised to stable if the stress on the wholesale book subsides and the Group is able to maintain its asset quality and profitability levels. The ratings may be downgraded in case of a significant deterioration in the asset quality of the credit book and profitability indicators or a sharp increase in the leverage indicators,” the agency said.

Although the Edelweiss Group has demonstrated its ability to maintain adequate asset quality, a prolonged slowdown in the real estate industry coupled with liquidity crunch in the overall market could have an adverse impact on the same going forward, it added.

According to the agency, the risks are, however, mitigated to some extent by the collateral cover maintained by the Group on such exposures and the likely capital raise of around ₹1,800 crore (in tranches, subject to the receipt of statutory approvals) announced by the Group. This would help reduce the overall leverage and provide some cushion to absorb losses, if any, on the lending book.

The shift in focus towards a more granular retail portfolio would help de-risk the portfolio and provide some comfort.

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