Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ rating on the debt instruments of ICICI Securities Primary Dealership Ltd (I-Sec PD; part of ICICI group).
CRISIL Ratings has also withdrawn its rating on Tier II bonds of Rs 170 crore (See Annexure 'Details of Rating Withdrawn' for details) in line with its withdrawal policy. CRISIL Ratings has received independent verification that these instruments are fully redeemed.
The ratings continue to reflect the strong support from the parent, ICICI Bank Ltd (ICICI Bank; rated ‘CRISIL AAA/CRISIL AA+*/Stable’), the company’s robust risk management systems and strong liquidity and funding profile. These strengths are partially offset by the volatility in earnings because of interest rate movements.
*for Tier I bonds (under Basel III) |
Analytical Approach CRISIL Ratings has factored in the support that I-Sec PD is expected to receive from its parent, ICICI Bank. CRISIL Ratings believes that ICICI Bank will continue to provide strong support to I-Sec PD considering the strategic importance of the entity, shared name and 100% shareholding. |
Key Rating Drivers & Detailed Description Strengths:
I-Sec PD, a wholly-owned subsidiary of ICICI Bank, receives considerable management and financial support from ICICI Bank because of its strategic importance to the parent and the bank’s strong moral obligation to extend such support. In addition to being the primary dealership arm of the ICICI group, the company enables the group to provide the entire range of products related to the debt market, thereby supporting the group’s position in the financial services domain. I-Sec PD achieved a success ratio of 65.2% in T-bills market against a regulatory requirement of 40%. The company has generated healthy returns, despite the inherent volatility in the primary dealership business. Because of the company’s track record of profitable operations, the group continues to undertake its primary dealership operations through I-Sec PD despite the Reserve Bank of India (RBI) directive in 2006 allowing banks to act as primary dealers. Therefore, CRISIL Ratings believes ICICI Bank will continue to provide ongoing and distress support to the subsidiary.
I-Sec PD predominantly deals in highly liquid securities, such as Government Securities (G-Secs) and Treasury Bills (T-bills), which comprised around 88% of stock-in-trade as on March 31, 2023. Additionally, exposure in the corporate bonds portfolio is restricted to adequate safety category. I-Sec PD’s funding and liquidity profile is further enhanced by its access to TREPs, call money markets and through systemic support via liquidity adjustment facility (LAF). Further, RBI extends liquidity support to standalone PDs, such as I-Sec PD, through a separate notified scheme and has also provided them favoured access to open market operations.
Weakness:
Being a primary dealer, I-Sec PD’s financial risk profile is exposed to market risks emanating from interest rate movements. As underwriting and trading in G-Secs constitute its mainstay business, rising interest rates tend to adversely affect the volumes and income, and consequently, reported profits will be highly correlated with movement in interest rates. CRISIL Ratings, therefore, believes that I-Sec PD’s earnings will remain volatile on account of the inherent nature of PD business. |
Liquidity: Superior Given the inherent liquidity available in the PD business, the liquidity position of the company remains superior. As on May 31, 2023, the portfolio of securities for trade and other liquid assets (including cash and equivalents, unutilised standing liquidity facility from RBI, and loans) amounted to Rs 29,716 crore. Against this, the total repayment obligations till November 30, 2023 are Rs 28,950 crore. The company also has intraday liquidity facility of Rs 3,500 crore from ICICI Bank to meet intra-day liquidity requirements. |
Outlook: Stable CRISIL Ratings believes I-Sec PD will continue to receive support from ICICI Bank and will maintain robust risk management systems, and strong funding and liquidity profile. |
Rating Sensitivity Factors Downward Factors
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About the Company I-Sec PD is a leading primary dealer in India. The company bids at auctions of G- Secs and provides liquidity in the secondary market for G-Secs. It also offers debt capital market (DCM) service. As part of its DCM business, it acts as an arranger/lead manager for private placement of debt by corporate entities and public sector units. As on March 31, 2023, I-Sec PD had a portfolio of Rs 22,506 crore of G-Secs, T-bills, corporate bonds and mutual funds, networth of Rs 1,582 crore, and capital adequacy ratio of 42.9/41.2% (as per RBI guidelines for primary dealers/non-banking financial companies).
For fiscal 2023, as per Indian Accounting Standard, I-Sec PD’s total comprehensive income was Rs 128 crore on total income of Rs 1,374 crore, against Rs 330 crore and Rs 1,048 crore, respectively, for the previous year. |
Key Financial Indicators
*Not Applicable |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
Annexure - Details of Rating Withdrawn
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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