Fitch Ratings has downgraded the Long-Term Issuer Default Ratings (IDRs) of Shriram Transport Finance Company Limited (STFC) and Muthoot Finance Limited (MFL) to 'BB' from 'BB+'.

It has also downgraded the Long-Term IDR of India Infoline Finance Limited (IIFL) to 'B+' from 'BB-'.

The global rating agency, in a statement, said the ratings of the aforementioned non-banking financial institutions (NBFIs) have been placed on Rating Watch Negative (RWN).

Fitch has also placed the 'BB-' Long-Term IDR of Manappuram Finance Limited (MFIN) on RWN.

According to the rating agency’s rating scale, ‘BB’ ratings indicate an elevated vulnerability to credit risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial alternatives may be available to allow financial commitments to be met.

‘B’ ratings indicate that material credit risk is present. The modifiers "+" or "-" are appended to a rating to denote relative status within major rating categories.

Also read: Fitch forecasts India’s FY'21 GDP growth at 5.6 per cent

The agency said its rating actions reflect increasing macro-economic challenges for the Indian NBFI sector. These include the growing effects from measures to contain the COVID-19 pandemic, which will compound the tightening in funding conditions for NBFIs in recent weeks.

The RBI's recent liquidity and regulatory support measures should help to improve the funding environment in the near term, but it also underlines the severity of the situation and Fitch sees continued uncertainty in the coming months nonetheless.

Fitch also expects the constraints on business activity to lead to operational disruptions that will directly affect asset quality. This comes on top of existing weak asset quality across banks and some NBFIs, and under-capitalisation in the banking system, which are likely to continue to hamper the growth and funding of the NBFI sector.

The agency recently revised down India's GDP growth forecast for the fiscal year ending March 2021 (FY21) to 5.1 per cent, from 5.6 per cent previously, and the risks are skewed to the downside as the authorities attempt to contain the virus.