Key Rating Drivers & Detailed Description

Strengths:

Support expected from the parent

The parent continues to extend financial and managerial support to CBHFL. Four 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 through term loans and overdraft facility. The parent will continue to extend need-based financial and managerial support to CBHFL.

The parent, however, in December’20 had 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), however, since the long stop date of the agreement lapsed on March 31, 2021, the same got terminated with effect from April 01, 2021. Nevertheless, the bank is expected to maintain a controlling stake in the entity over the medium term. CRISIL will continue to monitor developments in this regard.

Adequate resource profile

Resource profile remains strong because of diversity in the borrowing mix. As on March 31, 2021, resource profile comprised deposits (52%), bank borrowings (36%), refinancing from National Housing Bank (12%). The resource mix also includes borrowings from the parent, which are availed at marginal cost of the funds-based lending rate. Cost of funding was competitive at 6.9% for fiscal 2022, against 8.1% in fiscal 2021.

Weakness:

Limited market share in the housing finance segment

Despite a track record of around three decades, the company’s reach remains limited to the housing finance industry in India, with around 0.1% market share and a loan book of Rs 1,160 crores as on March 31, 2022 (Rs 1,130 crores as on March 31, 2021). Total disbursements have significantly increased by about 188% to Rs 248 crores in fiscal 2022 from Rs 86 crores in the previous fiscal. Lower disbursements in fiscal 2021 was due to a weak macro-economic environment following the pandemic and partly due to minimal disbursements from December’20 till March’21 due to covenants in the Sale Purchase agreement with Centrum Housing Finance Ltd, which has now been terminated with effect from April 01, 2021.

The company is present in nine states through 19 branches and four representative offices, and a significant ~53% 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 it will remain a relatively small player in the housing finance segment in India.

Modest asset quality

Gross non-performing assets (GNPAs) improved to 5.1% as on March 31, 2022, from 5.5% a year earlier. GNPAs for the housing sector increased to 5.3% as on March 31, 2022 (5.2% as on March 31, 2021), while those for the non-housing sector declined to 4.4% (6.3% as on March 31, 2021) in the said period. However, asset-side risk is cushioned by targeted customer segments. Home loans to individuals remain a major component of the loan portfolio, where ~47% 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 by recovering from accounts that have slipped, thereby enhancing the 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 the asset quality over the medium term.

Modest earnings

Profitability has remained steady in the past few fiscals. Profit after tax (PAT) was Rs 20 crores in fiscal 2022 against Rs 15 crores in the previous fiscal; return on assets (RoA) stood at 1.7% and 1.2% in fiscals 2022 and 2021, respectively. Ability to control credit costs as the company scales up operations and improves the earnings profile remains a key monitorable over the medium term.

Key Financial Indicators

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper/magazine/agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL Ratings. However, CRISIL Ratings alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites and portals.

About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)

CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans, certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and infrastructure investment trusts (InvITs).
 
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
 
For more information, visit www.crisilratings.com 
 

About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

CRISIL is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

CRISIL PRIVACY NOTICE
 
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your account and to provide you with additional information from CRISIL. For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer is part of and applies to each credit rating report and/or credit rating rationale (‘report’) that is provided by CRISIL Ratings Limited (‘CRISIL Ratings’). To avoid doubt, the term ‘report’ includes the information, ratings and other content forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this report does not create a client relationship between CRISIL Ratings and the user.

We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the report pertains.

Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively, ‘CRISIL Ratings Parties’) guarantee the accuracy, completeness or adequacy of the report, and no CRISIL Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about ratings by CRISIL Ratings are available here: www.crisilratings.com.

CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in place a ratings code of conduct and policies for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.

Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website, www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may contact the CRISIL Ratings desk at crisilratingdesk@crisil.com, or at (0091) 1800 267 1301.

This report should not be reproduced or redistributed to any other person or in any form without prior written consent from CRISIL Ratings.

All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.
 

CRISIL Ratings uses the prefix ‘PP-MLD’ for the ratings of principal-protected market-linked debentures (PPMLD) with effect from November 1, 2011, to comply with the SEBI circular, "Guidelines for Issue and Listing of Structured Products/Market Linked Debentures". The revision in rating symbols for PPMLDs should not be construed as a change in the rating of the subject instrument. For details on CRISIL Ratings' use of 'PP-MLD' please refer to the notes to Rating scale for Debt Instruments and Structured Finance Instruments at the following link: https://www.crisil.com/en/home/our-businesses/ratings/credit-ratings-scale.html