| Fullerton India Credit Company Limited | ||||||||||||
| 'CRISIL PP-MLD AAAr/CRISIL AAA/Stable' assigned to debt instruments | ||||||||||||
| Rating Action | ||||||||||||
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| 1 crore = 10 million | ||||||||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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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+'. |
| Analytical Approach |
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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 |
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Strengths: * 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. Weaknesses: * 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. |
| Liquidity |
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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 |
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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 |
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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. |
| 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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| 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 |
| For further information contact: | ||||||
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