Rating Rationale
February 21, 2018 | Mumbai
Cent Bank Home Finance Limited
Rating Reaffirmed 
 
Rating Action
Fixed Deposits Programme FA-/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its rating on the fixed deposits programme of Cent Bank Home Finance Ltd (CBHFL) at 'FA-/Stable'.
 
The rating continues to factor in support from Central Bank of India (Central Bank, rated 'CRISIL A+/CRISIL A#/Stable'), which is the majority stake holder (64%) in CBHFL; and the company's adequate resource profile. These strengths are partially offset by limited market share in the housing finance segment, modest asset quality, and modest earnings profile.

Key Rating Drivers & Detailed Description
Strengths
* Support expected from Central Bank:
CBHFL continues to receive financial and managerial support from majority shareholder, Central Bank, which has provided funding support to CBHFL in the form of term loans and overdraft facilities. Moreover, Central Bank extends management support to the company; two executive directors and three senior executives of Central Bank serve on the board of CBHFL. Also, an executive director from the bank is chairman of CBHFL.CRISIL believes that Central Bank will continue to extend need-based financial and managerial support to CBHFL.
 
Central Bank, however, has declared that it may disinvest its equity shareholding in CBHFL partially and bring in new investors. 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 is adequate due to diversity in borrowing mix. As on December 31, 2017, resource profile comprised of bank borrowings (31%), NHB refinance (13%), fixed deposits (54%), and debentures (3%). Resource mix is also supported by borrowings from Central Bank, which are availed at MCLR.       
 
Weakness
* Limited market share in the housing finance segment:
With gross loans outstanding of Rs 1317 crore and 18 branches as on December 31, 2017, the company is among the smaller  housing finance entities in India in terms of market share, disbursals, outstanding assets, and branch network. However, the companyhas strengthened its team by hiring professionals and enhancing systems and processes for real-time monitoring of branch operations. CRISIL believes that CBHFL will improve its market position gradually, and will remain a small player in the Indian housing finance segment over the medium term.

* Modest asset quality:
Gross non-performing assets were 2.7% as on December 31, 2017, against 2.4% as on December 31, 2016 (1.6% as on March 31, 2017). Asset quality is modest compared to other similar-sized peers despite 80% of portfolio comprisingof home loans to salaried segment, predominantly government employees, in Tier-II and Tier-III cities. CBHFL's ability to implement sound processes across value chains, especially underwriting, as it scales up operations in new geographies remains critical in determining asset quality over the medium term.
 
* Modest earnings:
Return on assets was 1.1% during the nine months ended December 31, 2017. However, this increased from 0.8% in fiscal 2017 on the back of improving net interest margins. CBHFL's ability to control credit costs will be critical in determining profitability over the medium term.
Outlook: Stable

CRISIL believes Central Bank will maintain a controlling stake in CBHFL and continue to extend need-based financial support to the latter over the medium term. The company will also continue to benefit from its comfortable and diversified resource profile. The outlook may be revised to 'Positive' if the company significantly improves capitalisation, earnings, and asset quality; while ramping up operations. The outlook may be revised to 'Negative' in case of a decline in expected support from Central Bank, change in CRISIL's view of Central Bank's credit risk profile, or deterioration in CBHFL's asset quality, profitability, or capitalisation.

About the Company

CBHFL is currently a 64% subsidiary of Central Bank; other shareholders include Housing and Urban Development Corporation Ltd (6.8%), NHB (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. The company had a reported networth of Rs 108 crore and gearing of 11.4 times, as on December 31, 2017.

For fiscal 2017, CBHFL reported a profit after tax (PAT) of Rs 11 crore on a total income of Rs 140 crore, against a PAT of Rs 13 crore on a total income of Rs 119 crore in the previous fiscal. During the nine months ended December 31, 2017, PAT was Rs 12 crore on a total income of Rs 112 crore, against Rs 7 crore and Rs 105 crore,respectively, for the corresponding period of the previous fiscal.

#Hybrid instruments

Key Financial Indicators
As on/for nine months ended December 31 Unit 2017 2016
Total Assets Rs. Cr. 1425 1382
Total income Rs. Cr. 112  105
Profit after tax Rs. Cr.    12 7
Gross NPA %    2.7 2.4
Adjusted gearing Times 11.4 12
Return on Assets (Annualised) % 1.1 0.7

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)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.cr) Rating assigned with outlook
NA Fixed Deposit Programme NA NA NA NA FA-/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Fixed Deposits  FD  0  FA-/Stable    No Rating Change  31-03-17  FA-/Stable  15-03-16  FA/Negative    No Rating Change  FA/Stable 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Links to related criteria
Rating Criteria for Finance Companies
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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