On Sunday, the rating company CARE downgraded the creditworthiness of around Rs 1.2 lakh crore of outstanding securities at DHFL (Dewan Housing Finance Limited) pointing out that the higher funding costs for non-banking financial companies (NBFC) after a series of defaults by IL&FS group.

Ratings on bonds, deposits and loans raised by the home financier from banks, mutual funds, insurers and superannuation funds were downgraded. CARE citied DHFL's falling share price and expanding borrowing costs as the justification for the change in ratings.

In a statement, the rating agency said, "The revision in the long-term ratings takes into account moderation in financial flexibility of DHFL as evidenced by the sharp reduction in its share price and significant rise in bond spreads."

"While stock prices and credit spreads were negatively affected for NBFCs and HFCs after September 2018, recent media news related to DHFL has further affected market sentiment," it further said.

Records suggest that collectively, 25 mutual fund houses hold DHFL papers worth Rs 8,650 crore as of December 2018 of which the top holders were Reliance mutual funds and UTI mutual funds.

Share price of DHFL Ltd has been falling for a week now after investigative portal Cobrapost reported that the company was allegedly involved in a Rs 31,000 crore scam by disbursing "huge loans" to shell companies and mostly without security. DHFL later in a press release denied the allegations and said that a "mischievous misadventure appears to have been done with a mala fide intent to cause damage to the goodwill and reputation of DHFL and resulting in erosion in shareholder value".