Rating Rationale
July 04, 2019 | Mumbai
Fullerton India Credit Company Limited
'CRISIL PP-MLD AAAr/CRISIL AAA/Stable' assigned to debt instruments
Rating Action
Total Bank Loan Facilities Rated Rs.8000 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Rs.500 Crore Long Term Principal Protected Market Linked Debentures CRISIL PP-MLD AAAr/Stable (Assigned)
Rs.6000 Crore Non Convertible Debentures CRISIL AAA/Stable (Assigned)
Rs.2200 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.500 Crore Subordinated Debt CRISIL AAA/Stable (Reaffirmed)
Rs.300 Crore Subordinated Debt CRISIL AAA/Stable (Reaffirmed)
Rs.3000 Crore Commercial Paper (Enhanced from Rs.2600 Crore) CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its ratings of 'CRISIL PP-MLD AAAr/CRISIL AAA/Stable' to the Rs .500 crore long-term principal-protected market-linked debentures and Rs 6000 non-convertible debenture issue of Fullerton India Credit Company Limited (FICCL). CRISIL has also reaffirmed its ratings on the bank facilities and other debt instruments at 'CRISIL AAA/Stable/CRISIL A1+'.
The rating factors in benefits derived from strong linkages with, and high strategic importance to, the parent, Fullerton Financial holdings Pte Ltd (FFH), which is a step-down subsidiary of Temasek Holdings Private Limited (Temasek; rated 'AAA/Stable' by S&P Global). The rating also reflects FICCL's healthy capitalisation, comfortable earnings, experienced management and strong liquidity management. These strengths are partially offset by the inherent vulnerability of asset quality in unsecured segments and its potential impact on profitability, although the high yield from these segments supports the earnings profile. Further, FICCL plans to increase the share of secured products over the medium term which would also support asset quality metrics.

Analytical Approach

The ratings factor in the strong support expected from, the parent, FFH given that strategic importance of FICCL to FFH, the 100% ownership, complete management control and shared brand.

Key Rating Drivers & Detailed Description
* Strategic importance to, and strong expectation of support from, FFH
The rating is underpinned by the expectation of strong support from FFH, a step down subsidiary of Temasek, owing to the high strategic importance of FICCL to FFH, the 100% ownership, complete management control over FICCL, and the shared brand name.
FICCL is of high strategic importance to FFH as the former has significantly increased its presence in rural/small and medium enterprise (SME) segments in line with the global strategy of FFH. Furthermore, FICCL's operations are closely integrated with the parent and global operations. FFH has senior level representation on the Board and various committees of FICCL, and is actively involved in all key decisions taken by the company. FICCL's compliance, finance, treasury, business and risk management functions are aligned with the global standards of FFH.
FFH has demonstrated its commitment towards FICCL during stressed times. It has regularly infused growth capital in the company. From 2007 till date, FFH has infused around Rs 2,000 crore with over Rs 600 crore being infused in 2009-2010 during the then stressed environment.
The shared brand also enhances the expectation of support from FFH, if needed. Any material disruption in FICCL business could, in CRISIL's view, have a significant impact on the reputation and franchise of the parent.
FICCL is expected to continue to benefit from the strong support from FFH. Any change in the management control by, or expectation of support from, FFH will remain a key rating sensitivity factor.
*Healthy capitalisation
The networth was sizeable at Rs 3652 crore, and the Tier I and overall capital adequacy ratios comfortable at 14.2% and 19.6%, respectively, as on March 31, 2019. The gearing too was comfortable at around 5.3 times as on March 31, 2019, against 5.1 times as on March 31, 2018. The company has a stringent capitalisation policy. It maintains a buffer over the regulatory requirement; the buffer is based on a stress test conducted in line with FFH policies. Despite strong growth plans, capitalisation is expected to remain comfortable over the medium term, supported by regular capital infusion and healthy internal accrual, thus providing a cushion against asset-side risks.
* Strong liquidity management
Liquidity management is strong with FICCL maintaining cash and liquid investments to the extent of at least one month of outflows at all points in time. Including fee-paying committed and undrawn bank lines, this increases further to 2.5-3 months of outflows. This liquidity cushion is higher during periods of stress as was seen during demonetisation. In addition, the diversified lender base, low reliance on short term funding and well-managed asset-liability mismatches to minimise tenor and refinancing risks provide support. FICCL has also raised two overseas Rupee Denominated Bond Issuances (Masala Bonds) thereby diversifying its funding profile further. The company is thus likely to be well-placed to withstand any liquidity pressure in the market.
* Comfortable earnings
Earnings are supported by a large proportion of high-yield businesses and competitive borrowing costs. Return on total assets (RoA) of the company stood at 3.7%, which remains higher than that of peers and the industry. The company became fully tax paying only in fiscal 2017. However, even adjusted for tax, profitability has been comfortable in the past.
Profitability metrics are comfortable with RoA1 at 3.7% in fiscal 2019 improving from 2.2% in fiscal 2018. The earnings profile was impacted in the first half of fiscal 2018 amidst an increase in delinquencies post demonetisation, especially in the rural portfolio as FICCL follows stricter than regulatory required provisioning norms. Nevertheless, earnings, remain susceptible to the inherent vulnerability of asset quality in the unsecured segment, which could result in a spike in provisioning costs.  Therefore, ability to improve the stability of earnings while scaling up the loan book remains a key monitorable.
* Inherent vulnerability of asset quality due to higher share of unsecured loans in the portfolio
Asset quality remains vulnerable to sharp increases given the high share of unsecured loans to the overall portfolio and inherent credit profile of borrower segment. As on March 31, 2019, assets under management (AUM) stood at Rs 21,542 crore, of which around 61% comprised unsecured loans (mainly personal loans [38%] and rural group loans [18%]), which are vulnerable to economic cycles. However, FICCL is planning to introduce new products and increase the proportion of secured products in rural areas which should support asset quality. Further, the rural loans portfolio is likely to benefit from the Government's policies towards this segment.
The impact on asset quality was visible during demonetisation, when gross non-performing assets (GNPA; 90+ days past due1) spiked to 3.3% as on March 31, 2017 (around 5.0% without regulatory forbearance) as against 1.9% as on March 31, 2016 due to an increase in delinquencies in rural group loans. However, FICCL was able to enforce corrective actions promptly and recoveries have been made, leading to an improvement in GNPAs to 2.0% as on March 31, 2019.
Over the years, risk management processes and data analytics capability have been strengthened. Underwriting norms and monitoring mechanisms have been reinforced. The unsecured lending business has also been supported through investments in risk analytics and technology. Underwriting and collection norms have been tightened based on portfolio performance trends and early warning indicators. Diversification in the loan book will also help mitigate asset quality challenges; this was witnessed during demonetisation when the performance of the urban portfolio remained relatively steady. The increased focus on risk management should mitigate the inherent asset quality risks following the high growth in recent years and focus on relatively riskier asset segments. Ability to maintain asset quality while scaling up the loan portfolio remains a key monitorable.

The ALM profile is comfortable with cumulative positive gaps in all maturity buckets upto 5 years as on March 31, 2019. As on June 25, 2019, the company had total repayment of Rs 2448 crore (CP constituted of Rs 1265 crore) till September 30, 2019 against which it has cash and liquid investments of Rs 1305 crore and unutilized bank lines of Rs 870 crore. Further, average monthly inflows from the loan book of around Rs 1000-1200 crore also support liquidity. The company is also in talks with banks to enhance the bank facilities and has around Rs 1150 crores in pipeline. Despite the market environment, the entity has managed to regularly raise funds having raised a total of around Rs 4601 crores since October 2018 till June 25, 2019.

Outlook: Stable

CRISIL believes FICCL will remain strategically important to, and continue to receive support from, FFH, and will sustain its growth momentum while maintaining its healthy financial risk profile. The company's strong focus on risk management will help mitigate the inherent asset quality risks. The outlook may be revised to 'Negative' if there is a significant diminution in the stake held by, or the support expected from, FFH, or in CRISIL's view, a weakening in the credit risk profile of FFH. The outlook may also be revised to 'Negative' in case of a significant deterioration in the asset quality of FICCL, thereby impacting its profitability and capital profile.

About the Company

FICCL was formed in December 2005 through the acquisition of Dove Finance (DF) by Asia Financial Holding Pte, Singapore (through its investment arm, Angelica Investment Pte Ltd). After the acquisition, the name was changed to First India Credit Company Ltd, which was then renamed to Fullerton India Credit Company Ltd deriving its name from the parent.

FICCL is wholly owned by FFH, which in turn is a wholly owned subsidiary of Temasek. Product offerings include secured products which comprise primarily of mortgages/loans against property, and commercial vehicle loans. The unsecured product offerings comprise of personal loans and rural group loans. The company operates through 526 branches.

Profit after tax (PAT) was Rs 775 crore on total income of Rs 4138 crores in fiscal 2019 against Rs 350 crore on total income of Rs 2713 crore in fiscal 2018.

1Portfolio performance is measured by 30+ dpd, 90+ dpd, 120+ dpd, 150+ dpd, and 180+ dpd (depending on the loan tenure), which are defined as the sum of overdue and future principal for contracts overdue for more than 30, 90, 120, 150, and 180 days, respectively, expressed as a percentage of portfolio outstanding at that point in time

Key Financial Indicators
As on / for the year ended   March 31, 2019 March 31, 2018
Total Assets (Reported) Rs crore 23975 17377
Total income Rs crore 4138 2713
Profit after tax Rs crore 775 350
Gross NPA % 2.0 2.4
Gearing Times 5.3 5.1
Return on assets^ % 3.7 2.2
^based on total assets

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
Issue size
(Rs. cr)
Rating outstanding
with outlook
NA Debenture^ NA NA NA 6000 CRISIL AAA/Stable
NA Long Term Principal Protected
Market Linked Debentures
NA Term Loan NA NA Door to door tenor
of 66 months
400 CRISIL AAA/Stable
NA Proposed Long Term
Bank Loan Facility
INE535H07AK8 Debenture 7-Aug-18 Zero 15-Jul-21 180.60 CRISIL AAA/Stable
INE535H07AN2 Debenture 2-Aug-18 8.80 30-Jan-20 25.0 CRISIL AAA/Stable
INE535H07AN2 Debenture 30-Jul-18 8.80 30-Jan-20 100 CRISIL AAA/Stable
INE535H07AJ0 Debenture 25-Jul-18 9.10 15-Dec-21 55 CRISIL AAA/Stable
NA Debenture^ NA NA NA 1681.4 CRISIL AAA/Stable
INE535H07308 Debenture 22-May-13 9.85 22-May-23 40 CRISIL AAA/Stable
INE535H07357 Debenture 5-Nov-13 10.45 3-Nov-23 25 CRISIL AAA/Stable
INE535H07712 Debenture 30-Nov-15 9.10 29-Nov-19 40 CRISIL AAA/Stable
INE535H07720 Debenture 30-Nov-15 9.10 30-Nov-20 25 CRISIL AAA/Stable
INE535H07811 Debenture 29-April-16 8.95 29-April-21 18 CRISIL AAA/Stable
INE535H07829 Debenture 10-May-16 8.95 10-May-21 10 CRISIL AAA/Stable
NA Subordinate Debt^ NA NA NA 500 CRISIL AAA/Stable
NA Subordinate Debt^ NA NA NA 300 CRISIL AAA/Stable
N.A Commercial Paper N.A N.A 7-365 days 3000 CRISIL A1+
^yet to be issued
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  3000.00  CRISIL A1+      10-08-18  CRISIL A1+    --    --  -- 
            26-07-18  CRISIL A1+           
            15-05-18  CRISIL A1+           
Long Term Principal Protected Market Linked Debentures  LT  500.00
CRISIL PP-MLD AAAr/Stable    --    --    --    --  -- 
Non Convertible Debentures  LT  8200.00
CRISIL AAA/Stable      10-08-18  CRISIL AAA/Stable    --    --  -- 
            26-07-18  CRISIL AAA/Stable           
            15-05-18  CRISIL AAA/Stable           
Subordinated Debt  LT  800.00
CRISIL AAA/Stable      10-08-18  CRISIL AAA/Stable    --    --  -- 
            26-07-18  CRISIL AAA/Stable           
            15-05-18  CRISIL AAA/Stable           
Fund-based Bank Facilities  LT/ST  8000.00  CRISIL AAA/Stable      10-08-18  CRISIL AAA/Stable    --    --  -- 
            26-07-18  CRISIL AAA/Stable           
            15-05-18  CRISIL AAA/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 7600 CRISIL AAA/Stable Proposed Long Term Bank Loan Facility 7600 CRISIL AAA/Stable
Term Loan 400 CRISIL AAA/Stable Term Loan 400 CRISIL AAA/Stable
Total 8000 -- Total 8000 --
Links to related criteria
Rating Criteria for Finance Companies
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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