| Cent Bank Home Finance Limited | ||||
| Rating placed on 'Watch Developing' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL has placed its rating on the long-term bank facility, fixed deposit programme and non-convertible debentures (NCDs) of Cent Bank Home Finance Limited (CBHFL) on 'Rating Watch with Developing Implications'.
The rating action follows the announcement on December 24, 2020, by the Central Bank of India via an exchange filing that it has entered into a binding agreement to divest its entire equity stake of 64.4% in CBHFL to Centrum Housing Finance Ltd (CHFL; part of the Centrum group) for a cash consideration of Rs 160 crore. The transaction is subject to regulatory and other required approvals. Central Bank of India has been trying to divest its equity shareholding in CBHFL based on the Government of India guidelines for monetisation of non-core assets.
The rating on the long-term debt instruments of CBHFL has been placed on 'Watch with Developing Implications'. Both CBHFL and CHFL are in the same business, with focus on affordable housing finance for low-to-middle income group in Tier II and Tier III cities. The acquisition is expected to yield potential synergies stemming from a larger portfolio, significant presence in common states such as Maharashtra, Gujarat, Delhi and Madhya Pradesh, and operational efficiencies.
CRISIL will resolve the rating watch once clarity emerges on the credit risk profile post-acquisition and synergies/benefit from association with the new shareholder. CRISIL will continue to monitor the progress on the proposed acquisition and take appropriate rating action thereafter.
Until the regulatory approvals are received, the ratings continue to reflect the expectation of some support from the parent, Central Bank of India, and CBHFL’s diversified resource profile. These strengths are partially offset by the company’s limited market share in the housing finance segment and modest asset quality and earnings profile.
From an industry perspective, the nationwide lockdown induced by Covid-19 had impacted disbursements and collections of companies. Intermittent lockdowns and localised restrictions could delay the return of collections to normalcy and put pressure on asset quality metrics. The company’s ability to manage asset quality will, therefore, remain a key monitorable.
As part of the measures for containing the pandemic, the Reserve Bank of India had allowed lenders to grant moratorium to borrowers; around 40% of CBHFL’s loan book was under moratorium as on August 31, 2020. While collections were impacted in April, CRISIL understands that these have inched up since then (till December). Furthermore, CRISIL understands that CBHFL has not opted for any moratorium from lenders and continues to service the debt as per schedule. |
Analytical Approach Currently, for arriving at its ratings, CRISIL has assessed the standalone credit risk profile of CBHFL and continues to factor in the expectation of some support from the parent. CRISIL believes Central Bank will continue to provide need-based financial and management support to CBHFL on account of majority shareholding (Central Bank holds 64.4% stake in CBHFL) and shared name. |
Key Rating Drivers & Detailed Description Strengths:
Central Bank of India continues to extend financial and managerial support to CBHFL. Three senior executives of the bank serve on the board of the company, and an executive director from the parent is also the chairman of CBHFL. Central Bank of India has also provided funding support in the form of term loans and overdraft facility. The parent will continue to extend need-based financial and managerial support to CBHFL.
Resource profile remains strong due to diversity in the borrowing mix. As on September 30, 2020, resource profile comprised of bank borrowings (30%), fixed deposits (44%), refinancing from National Housing Bank (23%) and NCD (3%). The resource mix also includes borrowings from the parent, which are availed at marginal cost of funds-based lending rate. Cost of funding was also competitive at 8.1% (annualised) for the half-year ended September 30, 2020, against 8.4% for fiscal 2020.
Weaknesses:
Despite a track record of more than 28 years, the company’s reach remains limited in the Indian housing finance industry, with around 0.1% market share and a loan book of Rs 1,209 crore as on September 30, 2020 (Rs 1,228 crore as on March 31, 2020). Total disbursements declined by about 36% to Rs 158 crore during fiscal 2020 from Rs 248 crore in the previous fiscal. Furthermore, disbursements were only Rs 35 crore in the first-half of fiscal 2021 against Rs 100 crore in the corresponding period previous fiscal due to weak macro-economic environment following the pandemic.
The company is present in nine states through 18 branches and 2 representative offices, and a significant 54% of the advances is concentrated in the top three states. However, CBHFL has strengthened its team by hiring professionals and enhancing systems and processes for real-time monitoring of branch operations.
The company is expected to improve its market position gradually, but will remain a relatively small player in the Indian housing finance segment over the medium term.
Gross non-performing assets (GNPAs) increased to 3.9% as on March 31, 2020, from 2.1% in the previous fiscal. For the half-year ended September 30, 2020, GNPAs stood at 3.8%. Increase in GNPAs is driven by higher delinquencies across product segments. Housing sector GNPAs increased to 3.6% as on September 30, 2020 (3.7% and 2.2% as on March 31, 2020, and March 31, 2019, respectively), while non-housing sector GNPAs increased to 4.3% (4.6% and 2.3%, respectively). However, asset-side risk is cushioned by targeted customer segments. Home loans to individuals remain a major component of the loan portfolio where about 40% of the lending is to the salaried segment, predominantly government employees, in Tier II and Tier III cities. Moreover, CBHFL has improved its focus on collections through recovering from accounts that have slipped, thereby enhancing portfolio quality.
The company’s ability to implement sound processes across the value chain, especially underwriting, as it scales up operations in new geographies remains critical in determining asset quality over the medium term.
Profitability has remained steadily low over the past fiscals. Profit after tax (PAT) was Rs 10 crore for fiscal 2020 against Rs 16 crore in the previous fiscal; return on assets (RoA) was 0.7% and 1.2%, respectively. Furthermore, for the half-year ended September 30, 2020, PAT was Rs 7 crore and annualised RoA 1.1%. Ability to control credit costs as the company scales up operations and improves earnings profile remains a key monitorable over the medium term. |
Liquidity: Adequate Liquidity is supported by sufficient buffer of Rs 105 crore in terms of cash and cash equivalents and unutilised bank limit as on September 30, 2020, against total debt of Rs 88 crore for the three months till January 2021. Liquidity is further backed by need-based funding support from the parent. Expected scheduled collections of Rs 15 crore per month from standard assets further support liquidity. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company CBHFL is a 64.4% subsidiary of Central Bank of India; other shareholders include Housing and Urban Development Corporation Ltd (6.8%), National Housing Bank (16%), and Specified Undertaking of Unit Trust of India (12.8%). CBHFL provides housing and non-housing loans to borrowers across nine states in India; Madhya Pradesh, Maharashtra and Gujarat together accounted for around 54% of total loans outstanding as on September 30, 2020.
For fiscal 2020, CBHFL reported a PAT of Rs 10 crore on a total income (net of interest expense) of Rs 43 crore, against Rs 16 and Rs 46 crore, respectively, in the previous fiscal. For the half-year ended September 30, 2020, the company reported a PAT of Rs 7 crore on a total income (net of interest expense) of Rs 21 crore, against Rs 4 crore and Rs 22 crore, respectively, for the corresponding period in the previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||
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