Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/CRISIL PPMLD AAA/Stable’ ratings on the existing debt instruments of ICICI Home Finance Company Ltd (ICICI HFC).
CRISIL Ratings has also withdrawn its rating on Rs 350 crore of non-convertible debentures, and Rs 1,000 crore long term principal protected market-linked debenture on the company's request as the outstanding against the same is nil and on receipt of confirmation from debenture trustee (See Annexure 'Details of Rating Withdrawn' for details). The withdrawal is in line with CRISIL Ratings withdrawal policy.
The ratings continue to reflect the expectation of continued strong support from the promoter, ICICI Bank Ltd (ICICI Bank; 'CRISIL AAA/CRISIL AA+/Stable') and the diversified resource profile of ICICI HFC. These strengths are partially offset by gradual restoration in asset quality and profitability wherein sustenance in improvement of both alongside business growth, remains a rating sensitivity factor.
The company’s Assets under management (AUM) stood at Rs 22,358 crore as on March 31, 2023 which marks an annual growth of 23% over fiscal 2022. The AUM further grew to Rs 27,490 crore on December 31, 2023. Corresponding to this growth, the company’s asset quality has also improved reflected in gross non-performing assets (NPAs) declining to 2.0% as on December 31, 2023 from 3.1% as on March 31, 2023 (5.8% as on March 31, 2022). This improvement was driven by higher collection efficiency and recoveries made during the year. In terms of profitability, the company reported a return on assets (RoA) of 2.0% (annualized) for the nine-month period ending December 31, 2023, higher than 1.4% in fiscal 2023 and 0.9% in fiscal 2022. |
Analytical Approach The ratings factor in expectation of strong support from the parent, ICICI Bank. CRISIL Ratings believes ICICI Bank will continue to support ICICI HFC, considering the strategic importance of the latter, shared brand and 100% shareholding. |
Key Rating Drivers & Detailed Description Strengths: Expectation of continued strong support from the parent ICICI HFC is a strategically important subsidiary for ICICI Bank, with presence in product segments and geographies complementing the offerings of the bank. It provides housing loans (with continued focus on affordable housing), loans against property (LAP), lease rental discounting (LRD), developer financing and gold financing. ICICI Bank has infused capital of Rs 250 crore in last fiscal to support the growth plans of the company. The bank also continues to provide strategic and management support to the company via representation on the board and monitoring of growth strategies and performance. Most of the current senior management of ICICI HFC has been drawn from ICICI Bank, having vast and well-rounded experience across domains. The company has significantly scaled up its distribution and credit capacities to deepen its presence in individual home loans and LAP segments. Strong parentage further enables the company to raise funds at competitive rates.
ICICI Bank holds a 100% stake in ICICI HFC and is likely to maintain majority share in the company going forward too.
Diversified resource profile The resource profile is stable and well-diversified. Total outstanding borrowing was Rs 18,518 crore as on December 31, 2023, comprising bank debt (28% of total borrowing;), bonds (34%), commercial paper (5%), fixed deposits (21%) and refinance from the National Housing Bank (NHB; 13%). The company has successfully raised medium-term and long-term debt from several investors at competitive rates. Cost of borrowing was around 7.3% (annualized) for the nine months ended December 31, 2023. Being part of the ICICI group enables the company to raise resources at competitive rates
Weakness: Gradual improvement in asset quality and profitability though sustainability of this trajectory remains a monitorable Asset quality has improved notably as gross stage-3 assets fell to 2.0% as on December 31, 2023, from 3.1% as on March 31, 2023 (5.8% as of March 31, 2022). This traction was supported by improvement in collections and recovery, particularly in Q3 2024 in which the company recovered its entire outstanding exposure against one large non-performing account in the construction finance segment. With a provisioning coverage ratio of 40%, net NPAs stood at 1.2% as on December 31, 2023, reduced from 2.0% as on March 31, 2023.
In the construction finance segment, the company significantly ran down the legacy book and relaunched the business in fiscal 2020, with stronger guardrails. The company has been selective with the CF portfolio, which formed 3% of the gross AUM as on December 31, 2023, as against 15% as on March 31, 2017. In the home loan and LAP segments, while the gross stage-3 assets inched up post the third wave of the Covid-19 pandemic, the company saw an improvement in collections and rollbacks, leading to relatively lower gross stage-3 assets as of December 31, 2023.
Considerable improvement in asset quality led to better profitability. Profit after tax (PAT) and return on average assets (RoA) increased to Rs 403 crore and 2.0% (annualized) respectively for nine months ended December 31, 2023 as against Rs 302 crore and 1.4%, respectively for fiscal 2023. The improvement was on account of improved net interest margins (NIMs) and reduced credit costs. NIMs for nine months ended fiscal 2024 stood at 3.9% (annualised) compared to 3.8% for fiscal 2023 (3.0% for fiscal 2022). Provision expense remained lower than the past two years and stood at 0.3% and 0.8% respectively for nine months ended December 2023 and for fiscal 2023. Further, continued investment on infrastructure, technology and manpower (operating expense at 2.0% of average total assets in fiscal 2023 and 2.1% (annualised) for nine months ended December 2023) has resulted in improved productivity and overall profitability.
Continued focus on retail home loans and LAP alongside strengthening of credit, risk and collections infrastructure, has been a catalyst for restoration in asset quality in the recent past. However, as the business scales, the company’s ability to sustain the improvement in asset quality and profitability remains a monitorable. |
Liquidity: Superior The company had cash and cash equivalents, and liquid investments aggregating to Rs 2,192 crore as on January 03, 2024, with further cushion available through unutilised sanctioned bank lines of Rs 2,725 crore. The liquid surplus will comfortably cover the wholesale principal obligation of Rs 2,062 crore for the next six months till June 30, 2024. With respect to asset liability management, there were no mismatches in any buckets up to 1 year as on September 30, 2023. The company also benefits from the support from ICICI Bank. |
Outlook: Stable CRISIL Ratings believes ICICI Bank will retain its majority shareholding in ICICI HFC, and continue to extend strategic, management and financial support to the company. The company will likely maintain diversified resource profile over the medium term. |
Rating Sensitivity Factors Downward Factors:
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About the Company ICICI HFC was incorporated in 1999, as a wholly owned subsidiary of ICICI Bank. The company provides housing loans, LAP, developer financing, and gold financing. The AUM and loan portfolio stood at Rs 27,490 crore and Rs 21,156 crore, respectively, as on December 31, 2023. Housing loans, LAP, and developer finance accounted for 66%, 31% and 3%, respectively, of the AUM. Gold financing constitute a negligible share. It had a network of 216 branches as on December 31, 2023.
The company reported PAT of Rs 403 crore on a total income of Rs 1,904 crore for nine months ended fiscal 2024 compared to Rs 302 crore and Rs 1951 crore, respectively, for fiscal 2023. |
Key Financial Indicators
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Any other information: Not Applicable |
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Annexure - Details of Instrument(s)
*Yet to be issued #Further issuances
Annexure - Details of Rating Withdrawn
*Yet to be issued |
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