In confirming the issuer rating, Moodys has relied on the governments support, which was made available to the institution when it wanted to meet its foreign currency obligations.

The rating agency has said a possible default on IFCIs commitments to its foreign lenders would seriously impair international confidence in India, a scenario it believed the government would like to avoid at all costs, according to a press release issued here.

But Moodys has pointed that despite the recent Rs 1,000-crore recapitalisation, IFCI still faces severe liquidity problems, resulting in at times finding it difficult to repay principal amounts on its local currency bonds.