Rating Rationale
December 31, 2020 | Mumbai
CreditAccess Grameen Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.2000 Crore
Long Term Rating CRISIL A+/Stable (Reaffirmed)
 
Rs.25 Crore Non Convertible Debentures CRISIL A+/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL's rating on bank facilities and debt instruments of CreditAccess Grameen Limited (CAGL) are driven by the company's strong market position and track record in the Indian microfinance sector, sound systems and practices supporting the stable asset quality, healthy capitalization with comfortable gearing and above average profitability. The aforementioned rating strengths are partially offset by the high degree of regional concentration in its operations, exposure to borrowers with modest credit risk profiles and susceptibility to local socio-political issues given the high proportion of microfinance loans in the overall portfolio.
 
With a standalone AUM of Rs 9,207 crore as on September 30, 2020, in addition to the newly acquired Madura Microfinance Ltd (MMFL) which had an AUM of Rs 1,975 crore on the same date, CAGL has sustained its leadership position in the microfinance sector of India. With microfinance being its key area of focus, 95% of the portfolio comprises microfinance loans with balance 5% being small ticket retail finance loans.
 
CAGL's operations are spread across 14 states (including a union territory) via a network of 1388 branches (including those of MMFL). In comparison, CAGL was present in 5 states in fiscal 2016. However, the state level concentration of portfolio, though declined over the last few years, still remains high with top 3 states (Karnataka, Maharashtra and Tamil Nadu) accounting for almost 85% of the AUM as of September 30, 2020. At a more granular level, concentration across districts has also remained on a higher side with top 10 districts accounting for 24% of the AUM and almost 1.0 times of the reported networth - as on September 30, 2020. However, some correction has taken place after amalgamation of MMFL. As on September 30, 2020 ' 97% of the district base (221) accounted for <2% of the AUM on an average and the highest exposure at a district level was 4.14%.
 
Commensurate to scale in business, CAGL's asset quality has remained stable ' supported by its sound systems and practices which have evolved over the years ' to mitigate the risks emerging with time. The GNPA (60+ dpd) has historically remained below 2% (except at the time of demonetisation). This sustenance in asset quality has been supported by CAGL's thorough understanding of the field and its customer base ' which have allowed it to design systems and practices accordingly. Apart from maintaining operational metrics like leverage level per borrower, exposure per branch etc., differentiated on field practices like weekly collection model have allowed CAGL to maintain its delinquency numbers. This was also demonstrated during demonetisation wherein the microfinance industry players faced high ultimate losses ranging from 3% to 14%. However, CAGL's ultimate credit loss was 3.5%, which is significantly lower than industry average. As on September 30, 2020, CAGL reported a GNPA (60+ dpd) of 1.63% (excluding MMFL) as against 0.50% - a year ago. However, early bucket delinquencies (0+ dpd of 18.1% on September 30, 2020), have risen in the immediate aftermath of moratoria culmination due to delayed and partial repayments.
 
The lockdown declared by the Government of India to contain the spread of the Novel Coronavirus (Covid-19) has had a momentary impact on disbursements and collections of financial institutions. Over the months, relaxations have been granted in a phased manner - varying across geographies. Eventual lifting of restrictions is also expected to be staggered. More than anticipated delay in return to normalcy will put further pressure on collections and asset quality metrics of companies. Additionally, as income generating activities of MFI borrowers were disrupted and are normalizing gradually, any change in the behaviour of borrowers on payment discipline can affect delinquency levels.
 
CRISIL has noted that while over-dues have risen, collection efficiency across players had started to improve from June with variability across states depending upon the lockdown and this uptrend should continue. However, the time it takes to reach pre-pandemic levels remains a monitorable. CRISIL will closely monitor the collection efficiency for the fourth quarter of fiscal 2021.
 
CAGL, like other MFIs, has navigated big events in the past, such as the Andhra crisis, demonetisation, natural calamities and local-level socio-political challenges. Nonetheless, the degree of vulnerability to socio-political events remains high for CAGL as an MFI, and in such a scenario - sufficiency of capital buffer to withstand asset-side shocks is critical.
 
In this milieu, capitalisation has remained healthy and gearing low ' backed by parentage of CreditAccess India N V (CAI, erstwhile CreditAccess Asia N V) and the company's own healthy accruals. Over the last five years, the peak adjusted gearing was at 4.9 times. With a networth of Rs 2883.7 crore (including minority interest), an adjusted gearing (including off book portfolio) of 3.7 times (on-book gearing of 3.4 times) and overall capital adequacy of 26.37% as on September 30, 2020 ' CRISIL believes the company's capitalization would remain adequate in relation to the scale if its operations - over the medium term in the normal course of business.
 
Profitability, marked by a steady state RoMA of 3.5-4% over the last 4 years, has been above average and exhibited high degree of stability. In the aftermath of covid-19, the company faces potential credit loss. However, CRISIL believes that CAGL has adequate pre-provisioning profitability buffer to mitigate the same.
 
As allowed by the regulatory measures announced under the 'Covid-19 - Regulatory Package', CAGL had availed moratorium on its borrowings (only on the principal component, interest component was honoured regularly) under both cycles. Throughout the moratoria, the company has confirmed that they continued to honour all debt obligations on time until receipt of final approval of moratorium from the respective lenders.
 
On the asset side, the company gave a blanket moratorium to its borrowers under moratorium 1.0. However, for moratorium 2.0, this option was extended on adopt in basis as many borrowers started to repay by the end of May 2020. For November 2020, CAGL reported a collection efficiency (excluding pre-payments, including overdue) of 92%, higher than 89% for October 2020.
 
The company's liquidity position remains adequate with cash and equivalents balance of Rs 1181.6 crore as on November 30, 2020 (excluding undrawn portion of existing term loans, direct assignment lines). Liquidity cover for debt obligations arising over the next two months, without factoring in any roll over or any incremental collections, was at around 1.0 time. Additionally, the company has been able to raise Rs 2,109 crore in fiscal 2021 (till November 30, 2020) under various schemes. As a policy, CAGL intends to maintain liquidity to cover at least two months of debt obligations.

Key Rating Drivers & Detailed Description
Strengths
* Strong market position in the Indian microfinance sector with long track record
Having grown at a 3 year CAGR of 47% through March 2020, CAGL has evolved as one of the largest microfinance institutions in the country over its operational history of over two decades. After acquiring Madura Microfinance Ltd in fiscal 2020, CAGL's consolidated AUM stood at Rs 11,996 crore as of March 31, 2020 ' of which about one-fourth came from MMFL. As on September 30, 2020, the company's consolidated AUM stood at Rs 11,183 crore. After remaining muted for most of H1 2021, disbursements have picked in Q3 2021. As against a nominal Rs 46 crore in June 2020, CAGL disbursed Rs 1560 crore in November 2020 - which is marginally higher than its pre-covid monthly disbursement rate.
 
CAGL has been able to scale the business at a robust rate in terms of size as well as operational presence, and all this while maintaining the operational parameters and infrastructure at comfortable levels. As customers with long credit history and association with CAGL have matured across loan cycles, the company started its retail finance portfolio in 2018 under which seasoned customers are offered loans of a higher ticket size (ATS Rs 1.5 lacs) however, this portfolio forms merely 5% of the total AUM as on date. Over the near term, the company's portfolio is expected to remain focused on microfinance business which is its core competence.
 
* Stable asset quality supported by sound ground level practices, traction in collections in the aftermath of covid-19 remains a monitorable
With reported GNPA (60+ dpd) of 1.63% (excluding MMFL) as of September 30, 2020 - which has historically remained below 2% (except at the time of demonetization), CAGL's asset quality remains healthy. Since January 2018, the company has operated at an average 0+ dpd of sub 2.0% with a minor surge to 2.3% witnessed in the second half of fiscal 2020 ' driven by socio-political issues in adjacent territories of Karnataka and Maharashtra. However, after the culmination of moratoria ' a lagged pick up in current collections and partial repayments has resulted in the 0+ dpd increasing to 18.1% as on September 30, 2020. The improvement and sustenance in collection efficiency to pre-pandemic levels and its consequent impact on asset quality will be a key monitorable.
 
CAGL's risk management practices have remained sound and evolved over the years ' to suit the increasing scale of business. However, the key maxims of the Grameen business model like focus on rural markets, weekly team meetings and collections, attendance discipline, audit, etc. have remained intact.The company has garnered a sound understanding of the business model and customer group over the years. 90% of the field employees are hired as freshers and from neighbouring livelihoods so as to have a strong connect with the borrowers. Each such employee undergoes a 4 week pre-hiring training and during their employment tenure - all branch officers have a fixed rotation policy. These policies allow CAGL to maintain very high stability at mid-level management and operate with low attrition rate. In terms of credit appraisal, new customers undergo a mandatory 5 day CGT/ GRT training and a home visit by the loan officer. Credit scores are checked before disbursals, 70% of which are in cashless mode and collections happen weekly which result in small EMIs. The company also has an audit team of 166 members which conducts ' head office, branch and field audits. This was also demonstrated during demonetisation wherein the microfinance industry players faced high ultimate losses in the range of 3% to 14%. However, CAGL's ultimate credit loss was only 3.5%, significantly lower than industry average.
 
* Healthy capitalisation with low gearing
In relation to its scale and nature of operations, CAGL's capitalisation has remained healthy supported by its healthy internal accruals and parentage of CAI which has demonstrated track record of extending equity support to the company. Over the last five years, the peak adjusted gearing was at 4.9 times. On September 30, 2020 ' CAGL had a reported networth of Rs 2,883.7 crore and an overall capital adequacy ratio of 26.37%. Adjusted gearing on the same date stood at 3.7 times and has remained comfortable in the past as well. In November 2020, the company has raised Rs 800 crore through Qualified Institutional Placement (QIP) which has further strengthened its capital position. Over its 5 year association with CAI - which holds 74.03% stake in CAGL after the Qualified Institutional Placement (QIP), the latter has received need based capital from it which has allowed the company to maintain growth momentum while maintaining adequate cushion to absorb risks alongside. In the near to medium term, CAGL's capital position is expected to remain adequate with a steady state gearing philosophy of 4 times and a tier I CAR of above 20%.
 
* Above average profitability
Evidenced by an average RoMA of 4% over the last 5 years, CAGL has sustained its earnings profile across business cycles. This above average profitability is anchored by lower than industry average operating expenses and consistently low credit costs. Even in the aftermath of demonetisation as credit losses for CAGL rose to 3.5%, its RoMA still remained far better than most MFIs at 2.4% for fiscal 2017. For fiscal 2020, the company reported an absolute PAT of Rs 328 crore against Rs 322 crore for the previous fiscal - resulting in a RoMA of 3.1% vis-a-vis 4.9% for the previous year. The reduction in RoMA in fiscal 2020 is a factor of additional acquisition expenses incurred and additional covid-19 related provisioning of Rs 83 crore made in the second half of fiscal 2020. For the first half of fiscal 2021, the company reported a consolidated PAT of Rs 154 crore after making additional provisioning of Rs 153 crore pertaining to Covid-19. In the medium term, while profitability is expected to sustain at current levels in the normal course of business, credit losses arising in the aftermath of covid-19 will remain a key sensitivity factor.
 
Weaknesses
* High regional concentration in operations
Despite gradual diversification across states over the last few years, the regional concentration in CAGL's loan portfolio remains high - with top 3 states accounting for almost 85% of the AUM as on September 30, 2020.  From 70% in March 2015, the share of Karnataka, which is the largest state in terms of concentration ' reduced to 51.5% of the loan book - by the end of March 2019. This was followed by Maharashtra accounting for 26.1% of the AUM and another 10.7% being housed in Tamil Nadu. With MMFL's on-boarding in fiscal 2020, there has been further improvement on this front. On September 30, 2020 ' exposure to Karnataka and Maharashtra reduced to 39.6% and 24.8% respectively, and in Tamil Nadu ' which was MMFL's core territory ' exposure increased to 19.8%. Even at a district level ' concentration has remained on a higher side with top 10 districts accounting for 24% of the AUM as of September 2020, while it has reduced from 32% level as of March 2019. As of September 2020, AUM exposure to top 10 districts was almost 1.0 time of the reported networth. However, as on same date, the highest exposure to AUM for any single district was 4.14%  
 
* Inherently modest credit profile of the borrowers
A significant portion of the portfolio comprises microfinance loans to clients with below-average credit risk profiles and lack of access to formal credit. Typical borrowers are cattle owners, vegetable vendors, tailors, tea shop owners, provision store owners, and small fabrication units. The income flow of these households could be volatile and dependent on the local economy. With the slowdown in economic activity after the lockdown, there was pressure on such borrowers' cash flows at the household level in the immediate aftermath, thereby restricting the repayment capability of these borrowers. However, given 80% of the company's borrower base is in rural areas wherein the impact of the pandemic and lockdown has been lower, the restoration in their occupational activities has been encouraging.Even though collections have picked up since June 2020, the revival to pre-pandemic level is some distance away, and CAGL's ability to reinstate repayment discipline among its customers will be a monitorable.
 
* Given the large microfinance book, susceptibility of asset quality to local socio-political issues remains high
The microfinance sector has witnessed two major disruptive events in the past decade. The first was the crisis promulgated by the ordinance passed by the Government of Andhra Pradesh in 2010 and the second was demonetisation in 2016. In addition, the sector has faced issues of varying intensity in several geographies. Promulgation of the ordinance on MFIs by the Government of Andhra Pradesh in 2010 demonstrated their vulnerability to regulatory and legislative risks. The ordinance triggered a chain of events that adversely affected the business models of MFIs by impairing their growth, asset quality, profitability, and solvency. Similarly, the sector witnessed high level of delinquencies post-demonetisation and the subsequent socio-political events. For CAGL, the impact of demonetisation was relatively lesser as compared to that for other peers. In the recent past, it did witness a marginal uptick in early bucket delinquencies as a consequence of the issues in North Karnataka. This indicates the fragility of the business model against external risks. As the business involves lending to the poor and downtrodden sections of the society, MFIs will remain exposed to socially sensitive factors, including charging of high interest rates, and consequently, tighter regulations and legislation.
Liquidity Strong

The company's liquidity position remains adequate with cash and equivalents balance of Rs 1181.6 crore as on November 30, 2020 (excluding undrawn portion of existing term loans, securitisation lines). Liquidity cover for debt obligations arising over December 2020 and January 2021, without factoring in any roll over or any incremental collections, was at around 1.0 time. Additionally, the company has been able to raise Rs 2,109.5 crore till November 30, 2020 under various schemes. Additionally, CAGL has also raised about 800 crore through QIP which has further bolstered its liquidity for the near to medium term.

Outlook: Stable

CRISIL believes CAGL will sustain its market position in the microfinance sector, while maintaining asset quality alongside growth. Its financial risk profile will remain supported by the company's healthy capitalization and above average profitability.
 
Rating Sensitivity Factors
Upward factors
* Geographical diversification in operations with reduction in state and district level concentration
* Overall profitability (RoMA) remaining consistently above 4% while maintaining adjusted gearing at below 3 times.
 
Downward factors
* Significant and prolonged deterioration in asset quality with GNPA increasing to and remaining at above 2.5% and/ or RoMA reducing to and remaining below 3%. 
* Moderation in capitalization - evidenced by gearing increasing to and remaining above 5 times commensurate to a decline in tier I CAR to below 18%.

About the Company

Established in 1991 as Sanni Collection Private Limited in West Bengal, CAGL commenced its microfinance operations in 1998 as a division under T. Muniswamappa Trust (TMT), a registered public charitable trust/NGO. In 2007, it transformed into a microfinance institution under the brand name Grameen Koota and subsequently in the year 2016, the company started its retail finance portfolio. In 2018, its name was changed to CreditAccess Grameen Ltd and the company got listed in the same year. Subsequently in 2020, it acquired 76% stake in a Tamil Nadu based MFI - MMFL which it will eventually increase to 100% before MMFL is merged into CAGL. The company's operations are spread across 14 states (including 1 Union Territory) with a borrower base of over 4 million.

Key Financial Indicators
Particulars as on 31 Unit Mar-20 Mar-19
    (including MMFL) Standalone
Assets under management# Rs crore 11996 7159
Total income Rs crore 1638 1221
Profit after tax (PAT) Rs crore 335 322
Return on managed assets# % 3.1 4.9
GNPA % 1.57$ 0.61
Adjusted gearing# Times 3.7 2.4
#includes off book portfolio
$standalone

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
SIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Complexity Level Rating assigned and outlook
NA Non-Convertible Debenture^ 31-Jul-20 NA 30-Jul-23 25.00 Simple CRISIL A+/Stable
NA Term Loan 30-Aug-19 NA 30-Aug-21 28.70 NA CRISIL A+/Stable
NA Term Loan 06-Mar-20 NA 28-Feb-22 51.73 NA CRISIL A+/Stable
NA Term Loan 20-Feb-20 NA 20-Jun-22 95.45 NA CRISIL A+/Stable
NA Term Loan 29-Jun-18 NA 29-Nov-20 4.68 NA CRISIL A+/Stable
NA Term Loan 29-Mar-19 NA 29-Aug-21 23.08 NA CRISIL A+/Stable
NA Term Loan 29-Jun-19 NA 27-Nov-21 29.30 NA CRISIL A+/Stable
NA Term Loan 09-Dec-19 NA 06-May-22 41.76 NA CRISIL A+/Stable
NA Term Loan 27-Feb-20 NA 27-Jul-22 45.92 NA CRISIL A+/Stable
NA Term Loan 31-Dec-18 NA 30-Jun-21 67.50 NA CRISIL A+/Stable
NA Term Loan 28-Mar-19 NA 28-Aug-21 62.86 NA CRISIL A+/Stable
NA Term Loan 28-Jun-19 NA 28-Nov-21 100.00 NA CRISIL A+/Stable
NA Term Loan 14-Feb-20 NA 14-May-22 142.86 NA CRISIL A+/Stable
NA Term Loan 20-Mar-20 NA 19-Aug-22 143.75 NA CRISIL A+/Stable
NA Term Loan 09-Mar-18 NA 30-Jun-21 5.45 NA CRISIL A+/Stable
NA Term Loan 30-Oct-18 NA 30-Apr-21 15.91 NA CRISIL A+/Stable
NA Term Loan 07-Jun-19 NA 07-Jun-21 40.91 NA CRISIL A+/Stable
NA Term Loan 28-Jun-19 NA 28-Jun-21 40.91 NA CRISIL A+/Stable
NA Term Loan 25-Mar-19 NA 24-Mar-21 12.50 NA CRISIL A+/Stable
NA Term Loan 12-Sep-19 NA 10-Sep-21 32.50 NA CRISIL A+/Stable
NA Term Loan 09-Dec-19 NA 08-Dec-20 85.00 NA CRISIL A+/Stable
NA Term Loan 09-Dec-19 NA 08-Dec-20 15.00 NA CRISIL A+/Stable
NA Term Loan 31-Jan-20 NA 29-Jan-21 20.00 NA CRISIL A+/Stable
NA Term Loan 31-Jan-20 NA 29-Jan-21 30.00 NA CRISIL A+/Stable
NA Term Loan 31-Jan-20 NA 29-Jan-21 29.25 NA CRISIL A+/Stable
NA Term Loan 31-Jan-20 NA 29-Jan-21 50.62 NA CRISIL A+/Stable
NA Term Loan 31-Jan-20 NA 29-Jan-21 37.50 NA CRISIL A+/Stable
NA Term Loan 30-Dec-19 NA 30-May-22 33.33 NA CRISIL A+/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 713.53 NA CRISIL A+/Stable
^yet to be issued
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT  25.00
31-12-20 
CRISIL A+/Stable  31-08-20  CRISIL A+/Stable    --    --    --  -- 
        27-07-20  CRISIL A+/Stable               
Short Term Debt  ST                      CRISIL A4+ 
Fund-based Bank Facilities  LT/ST  2000.00  CRISIL A+/Stable  31-08-20  CRISIL A+/Stable    --    --    --  -- 
        27-07-20  CRISIL A+/Stable               
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Long Term Bank Loan Facility 713.53 CRISIL A+/Stable Proposed Long Term Bank Loan Facility 570.73 CRISIL A+/Stable
Term Loan 1286.47 CRISIL A+/Stable Term Loan 1429.27 CRISIL A+/Stable
Total 2000 -- Total 2000 --
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Finance Companies

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