Rating Rationale
August 13, 2019 | Mumbai
Fullerton India Home Finance Company Limited
'CRISIL AAA/Stable/CRISIL A1+' assigned to bank debt and debt instruments
 
Rating Action
Total Bank Loan Facilities Rated Rs.2000 Crore
Long Term Rating CRISIL AAA/Stable (Assigned)
 
Rs.1500 Crore Non Convertible Debentures CRISIL AAA/Stable (Assigned)
Rs.500 Crore Subordinated Debt CRISIL AAA/Stable (Assigned)
Rs.500 Crore Commercial Paper CRISIL A1+ (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL AAA/Stable/CRISIL A1+' ratings to the long term bank facility and debt instruments of Fullerton India Home Finance Company Limited (FIHFC).
 
The ratings on FIHFC factor in strong support from the ultimate parent, Fullerton Financial Holdings (FFH), Singapore, a step down subsidiary of Temasek (rated: AAA/Stable by S&P Global). The rating also reflects the experienced management and healthy capitalisation in FIHFC. These rating strengths are partially offset by moderate asset quality and profitability.
 
FFH is a step down subsidiary of Temasek, which holds 100% stake in FIHFC via its subsidiary Fullerton India Credit Company Ltd (FICCL; rated 'CRISIL AAA/CRISIL PP-MLD AAAr/Stable/CRISIL A1+'). FIHFC is into housing loans, loans against property and construction finance in the affordable housing segment primarily in rural/small and medium enterprise (SME) segments which is in line with the target segment of FICCL and consequently, blending into the global strategy for FFH. The strategic importance of FIHFC is visible in the regular capital infusions that it has received since inception (Rs 700 crores), Board oversight from FFH and FICCL having strong presence on the Board and regular interactions of FIHFC with FICCL and FFH. FIHFC adopts similar policies in terms of liquidity and risk management as FICCL and has regular interactions with FFH on the same. Further, in CRISIL's view, the shared brand name also enhances the expectation of support from FFH, if needed.
 
Having commenced operations in December 2015, FIHFC leverages upon the infrastructure of FICCL in terms of branch outreach with operations, treasury, finance, legal and analytics being shared between them. FIHFC currently operates out of around 80 branches of which only 20-25 branches are owned whereas all others are shared with FICCL. Consequently, it has been able to scale up its loan book to Rs 2967 crores as on March 31, 2019 from Rs 24 crores as on March 31, 2016.
 
The rating also reflects the experienced management team of FIHFC with over 2 decades of relevant experience, in private and foreign banks and financial services companies. Mr. Rakesh Makkar, the Whole Time Director and Chief Executive Officer (WTD & CEO) of FIHFC has over 2 decades of experience in the financial services sector and was previously driving the business, Marketing & CSR functions at FICCL. Mr. Anindo Mukherjee who is the Chairman of FIHFC and Non-Executive Director at FICCL has over 25 years of banking experience. He is Chief Operating Officer and also heads the Integrated Risk Management function at FFH, Singapore.
 
In the initial years, the company witnessed elevated slippages mainly attributed to few geographies where it faced challenges. However, the company took corrective actions and has since then focused on strengthening the internal processes and systems. The 90+ dpd stood at 2.2% as on June 30, 2019, which remains slightly elevated. For the book originated post April 2018, Rs 2,177 crore, the company had 30+ overdues of ~Rs 11.3 crores (0.52%) and 90+ dpd of 0.25%. While the company has put in place robust systems and processes for monitoring asset quality metrics, ability to scale up the portfolio whilst maintaining asset quality metrics remains a key monitorable..
 
Given the nascent stage of operations, the earnings profile currently is marked by high operating expenses and elevated credit costs which has impacted the earnings profile. While the operating expenses are expected to normalise going forward as the branches achieve scale, ability to manage credit costs will be a key monitorable for improvement in earnings profile.

Analytical Approach

For the purpose of the rating, CRISIL has factored in expectation of support that FIHFC is expected to receive from its ultimate parent FFH, both on an ongoing basis, and in the event of distress given its high strategic importance.  This is also driven by its growth plans in the affordable housing segment, complete ownership and management control, and the shared brand name. FFH holds 100% stake in FIHFC via its subsidiary, Fullerton India Credit Company Ltd (FICCL, rated 'CRISIL AAA/CRISIL PP-MLD AAAr/Stable/CRISIL A1+').

Key Rating Drivers & Detailed Description
Strengths
* Expectation of strong support from FFH
FFH is a step down subsidiary of Temasek which holds 100% stake in FIHFC via its subsidiary Fullerton India Credit Company Ltd (FICCL). FIHFC is into housing loans, loans against property and construction finance in the affordable housing segment in line with the target segment of FICCL and consequently, blending into the global strategy for FFH. The strategic importance of FIHFC is visible in the regular capital infusions that it has received since inception (Rs 700 crores), Board oversight with FFH and FICCL both having strong presence on the Board, regular interactions between HFC with FICCL and FFH, FIHFC adopts similar policies in terms of liquidity and risk management as FICCL and has regular interactions with FFH on the same.
 
Having commenced operations in December 2015, FIHFC leverages upon the infrastructure of FICCL in terms of branch outreach with operations, treasury, finance and analytics being shared between them. FIHFC currently operates out of around 80 branches of which only 20-25 branches are owned whereas all others are shared with FICCL.  Consequently, it has been able to scale up its loan book to Rs 2967 crores as on March 31, 2019 from Rs 24 crores as on March 31, 2016.
 
* Experienced management team
FIHFCL has an experienced management team drawn from leading private and foreign banks and financial services companies with over two decades of relevant experience. During FY18 (refers to period from April 01 to March 31), there were changes in management with Mr. Anindo Mukherjee joining as the Chairman and Non-Executive Director and Mr. Rakesh Makkar joining as the Whole Time Director and Chief Executive Officer (WTD & CEO). Mr. Makkar has over 20 years' experience of experience in establishing new businesses, managing large and multi-pronged distribution networks. Prior to joining FIHFC he was heading the business vertical for FICCL.
 
* Healthy Capitalisation
The company has received high quantum of initial capital and subsequently more equity infusion from parent to support its growth plans. The parent has infused Rs 700 crore since inception of which Rs 200 crore was infused in July 2019.
 
As a result, the networth and overall capital ratios are comfortable at Rs 469 crores and 21.63% as on March 31, 2019 compared to Rs 330 crores and 24.15% as on March 31, 2018. Post the capital infusion in July 2019, the overall capital adequacy ratio improved to 23.70%. Gearing metrics too remain adequate at 5.9x (including book overdraft as a part of total borrowings) as on March 31, 2019 as compared to 4.7x as on March 31, 2018. The company plans to maintain a target gearing of 6-7 times on a steady state basis.
 
Weakness
* Moderate asset qualityIn the initial years, the company witnessed elevated slippages mainly attributed to few geographies where it faced challenges. However, the company took corrective actions and has since then focused on strengthening the internal processes and systems. The 90+ dpd stood at 2.2% as on June 30, 2019, which remains slightly elevated. For the book originated post April 2018, Rs 2,177 crore, the company had 30+ overdues of ~Rs 11.3 crores (0.52%) and 90+ dpd of 0.25%. While the company has put in place robust systems and processes for monitoring asset quality metrics, ability to scale up the portfolio whilst maintaining asset quality metrics remains a key monitorable.
 
* Moderate scale of operations and profitability
FIHFC commenced lending operations in December, 2015 and is in its nascent stage of operations with FY17 being the first full year of operations. The company has managed to scale up its operations to Rs 2967 crore on March 31, 2019 from Rs 1875 crores as on March 31, 2018. Of this, housing loans constituted the bulk at 59% followed by LAP at 40% and construction finance which was under 1%. Going forward, the company plans to maintain housing loans at around 55-60% of the portfolio with developer loans to be capped at 10% of the portfolio on a higher side. The remaining would be constituted by loans against property. Nevertheless, the company is expected to remain a small player in the overall housing finance market in the near term.
 
Being in the nascent stage of operations, earnings profile has been constrained by elevated operating expenses and credit costs. The company reported net profit of Rs 0.48 crore for FY19 compared to a profit of Rs 4.24 crore in fiscal 2018. Profit in fiscal 2018 was on account of deferred tax benefit which the company availed. PBT for the company was Rs 2.96 crore for fiscal 2019 compared to loss of Rs 3.43 crore in fiscal 2018. However, operating expenses are expected to normalise as the company achieves scale. Nevertheless ability to manage credit cost and improve operating efficiencies which would inturn support the earnings profile remains a key monitorable.
Liquidity

FIHFC maintains cash and liquid investments to the extent of at least one month of outflows at all points in time in line with immediate parent's policy. It has very low reliance on short term funding. As on June 2019, FIHFC has only 3% of total borrowing in Commercial Paper. Being in the nascent stage of operations, FIHFC has negative cumulative mismatches in the upto 1 year bucket, measured on a contractual basis though within regulatory limits.  This is mainly due to inflows from assets falling in the more than 1 year bucket.  As on June, 30 2019, FIHFC has outstanding debt payments of Rs 274 crores till December 2019, of which CP maturities are Rs 82 crore. , The ALM position is largely supported by on-balance sheet cash equivalents and unutilised bank lines. As on June 30, 2019, FIHFCL had cash equivalent and investment of Rs 267 crore and unutilised bank lines of Rs 650 crore (includes un-committed short term line from FICCL). The company also holds sanction letters from banks for pool purchase transactions in order to diversify liquidity sources.  Further, the Company is in discussions for widening funding sources through issue of Market Linked Debentures and External Commercial Borrowings as part of conservative liability management.

Outlook: Stable

CRISIL believes FIHFC will remain strategically important to, and continue to receive support from, FFH over the medium term. 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 FIHFC, thereby impacting its profitability and capital profile.

About the Company

The company started its operation in December 2015; offering home loan and loan against property in the affordable segment to the salaried and self-employed professionals.  FFH currently holds 100% in the HFC via its subsidiary FICCL.

The company leverages on the existing infrastructure of FICCL with branch sharing. It currently operates out of 80 branches out of which 20-25 branches are self and the rest are shared with FICCL.
 
In fiscal 2019, the company reported a profit after tax of Rs 0.48 crores on a total income of Rs 330 crores compared to Rs 4.24 crores and Rs 137 crores in fiscal 2018.

Key Financial Indicators
As on/for the period/ for the year ended as per INDAS   March 31, 2019 March 31, 2018
Total Assets Rs crore 3468 2002
Total income Rs crore 330 137
Profit after tax Rs crore 0.48 4
Gross NPA % 2.07 1.51
Adjusted Gearing Times 5.9 4.7
Return on assets % 0.02 0.3

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 outstanding 
with outlook
NA Commercial Paper NA NA 7- 365 days 500 CRISIL A1+
NA Non-convertible debentures* NA NA NA 1500 CRISIL AAA/Stable
NA Subordinated debt* NA NA NA 500 CRISIL AAA/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 2000 CRISIL AAA/Stable
*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  500.00  CRISIL A1+    --    --    --    --  -- 
Non Convertible Debentures  LT  0.00
13-08-19  		CRISIL AAA/Stable    --    --    --    --  -- 
Subordinated Debt  LT  0.00
13-08-19  		CRISIL AAA/Stable    --    --    --    --  -- 
Fund-based Bank Facilities  LT/ST  2000.00  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 2000 CRISIL AAA/Stable -- 0 --
Total 2000 -- Total 0 --
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 Group Support
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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