Rating Rationale
July 15, 2019 | Mumbai
 
Indiabulls Housing Finance Limited
Rating revised to 'Watch with Negative Implications'
 
Rating Action
Total Bank Loan Facilities Rated Rs.24549.98 Crore
Long Term Rating CRISIL AAA (Revised to 'Rating Watch with Negative Implications' from 'Rating Watch with Developing Implications')
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.12000 Crore Retail Bonds Issue* CRISIL AAA (Revised to 'Rating Watch with Negative Implications' from 'Rating Watch with Developing Implications')
Retail Bonds Issue Aggregating Rs 3000 Crore* CRISIL AAA (Revised to 'Rating Watch with Negative Implications' from 'Rating Watch with Developing Implications')
Non-Convertible Debentures Aggregating Rs.34300 Crore CRISIL AAA (Revised to 'Rating Watch with Negative Implications' from 'Rating Watch with Developing Implications')
Subordinated Debt Aggregating Rs.2500 Crore CRISIL AAA (Revised to 'Rating Watch with Negative Implications' from 'Rating Watch with Developing Implications')
Rs.25000 Crore Commercial Paper Programme CRISIL A1+ (Reaffirmed)
Rs.1000 Crore Short-Term Non-Convertible Debenture Programme CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*Includes secured NCD and unsecured subordinated debt
Detailed Rationale

CRISIL has revised its rating watch on the long term bank facilities and debt instruments of Indiabulls Housing Finance Limited (IBHFL) to 'Rating Watch with Negative Implications' from 'Rating Watch with Developing Implications'. The rating on the short term bank facilities and the short-term debt programme has been reaffirmed at 'CRISIL A1+'.
 
CRISIL had placed its ratings on long-term debt instruments of IBHFL, on 'Watch with developing implications' on April 10, 2019, after the company announced its scheme of amalgamation with Lakshmi Vilas Bank (LVB). IBHFL has received the approval from the Competition Commission of India (CCI) for the proposed merger, while it awaits other regulatory approvals.
 
With progress on the merger, the rating watch has been revised to 'Watch with Negative Implications' as it is possible that the credit profile of the merged entity as a bank could be relatively weaker than other CRISIL AAA rated private banks, at least in the short term. There could be transitional challenges once the merger goes through as the entity would need to establish its liabilities franchise to compete effectively with existing banks. Further, while IBHFL today has a strong market position in the housing finance company (HFC) space and is among the larger HFCs, on conversion to a bank ' it will be a relatively mid-sized bank.
 
CRISIL will resolve the rating watch and take a final rating action once there is clarity on the regulator's stance on the proposed merger, and also when CRISIL has detailed information on the organisational structure and business strategy of the merged entity.
 
The ratings continue to reflect CRISIL's expectation that IBHFL will maintain a strong trajectory in business volume in retail mortgage finance. The company shall maintain focus on increasing the share of retail housing loans and reinforce its market position in this space. The rating also factors in IBHFL's heathy asset quality, robust capitalisation, strong profitability, healthy cover for asset-side risks, and sufficient liquidity. IBHFL is currently one of the largest and most profitable non-bank lenders in India.
 
IBHFL has been reducing its commercial credit exposure, mainly through refinance and prepayments. The company is taking steps to reduce the commercial credit exposures further in near term and is in advanced talks with investors/financial institutions to refinance a few of these. Recoveries from some stressed wholesale exposures also testify to IBHFL's strong capabilities on this front. Liquidity is aided by cash and cash equivalents of Rs 28,511 crore as on June 30, 2019, which provides a 140% cover over IBHFL's next 12 months of debt repayment. IBHFL has bolstered its liquidity cushion since September 2018 as cash and cash equivalents have increased to around 25% of total assets as on March 31, 2019 from around 16% as on September 30, 2018. Further, IBHFL has raised Rs 4,374 crore via bonds, ECBs and commercial paper, and Rs 5,645 crore through bank borrowings and securitisation in the first quarter of fiscal 2020.
 
Any sharp increase in non-performing assets (NPAs), mainly in the commercial credit portfolio and/or tightening in the resource profile, will remain key rating sensitivity factors for IBHFL.
 
The operating environment is currently challenging for non-banking financiers {non-banking financial companies (NBFCs) including housing finance companies (HFCs)} and that there have been issues in funding access, especially for those with a wholesale lending book. Interest from investors in the debt capital market for the NBFC / HFC sector has reduced in the recent past, and a material turnaround is not expected in the near term. Further, with rising borrowing cost and slowdown in disbursements by non-banks - mainly to wholesale borrowers, refinancing risks for real estate players has increased. This, in CRISIL's view, could strain the asset quality of the wholesale lending portfolio of non-banks, in the near to medium term.
 
From a funding access perspective for non-banks, the recent budgetary announcement of Government support to public sector banks, through a partial credit enhancement mechanism for buying asset pools from NBFCs, should nevertheless bring some respite.

CRISIL has withdrawn its rating on non-convertible debentures of Rs 2125 crore (see Annexure 'Details of Rating Withdrawn' for details) in line with its withdrawal policy. CRISIL has received independent confirmation that these instruments have been fully redeemed

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of IBHFL and its subsidiaries. That is because of the substantial operational and management integration, common promoters and shared brand.

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths
* Established market position in the retail mortgage finance segment
IBHFL is the one of the three largest housing finance companies (HFC) in India, with a strong market position, as it caters to niche markets and customer segments. Being one of the largest players in the retail mortgage finance segment, the company has total assets under management (AUM) of Rs 120,525 crore, including a loan against property (LAP) portfolio of around Rs 20,300 crore as on March 31, 2019. It continues to increase the share of housing loans within the overall AUM ' it has risen to 63.6% as at March 31, 2019, from 49.5% as of March 31, 2015, and may increase further. Focus on salaried customers in the suburbs of Tier I and Tier II cities, with ticket size of Rs 15-30 lakh in the housing segment, is expected to continue.
 
Given the challenging operating environment faced by non-bank financiers including IBHFL, overall AUM declined by 1% in fiscal 2019, with disbursements dropping to around Rs 32,000 crore, from Rs 48,130 crore during the previous fiscal, and prepayments in the wholesale lending book. CRISIL expects IBHFL's loan book to grow at moderate pace over the near to medium term.
 
* Strong profitability and healthy asset quality
Operating margin remains healthy despite increase in share of relatively lower-yielding housing loans in the overall portfolio. Return on assets (RoA) remains high over 3.0%, driven by the competitive cost of borrowing and better operating efficiencies. The earnings profile also benefits from the high-yielding non-housing loans, despite rise in borrowing cost, as HFCs find it difficult to access funding. Asset quality in the non-housing segment also remains healthy and hence, credit cost is low.
 
Risk-mitigating measures are prudent, in the form of conservative loan-to-value ratios (averaging around 50%) in the loans against property (LAP) segment, and emphasis on collateral with sufficient cover in the commercial credit segment. Gross non-performing assets (NPAs) have, therefore, remained healthy at 0.88% as on March 31, 2019 (around 0.77% as of March 31, 2018).
 
* Robust capitalisation, with healthy cover for asset-side risks
Capitalisation is marked by sizeable networth of Rs 18,284 crore as on March 31 2019, supported by adequate internal accrual. Networth coverage for net non-performing assets (NPAs) was also comfortable around 22 times. Consolidated Tier 1 capital adequacy ratio (CAR) was healthy at 19.7%, and total CAR at 26.3%, as on March 31, 2019. Consolidated gearing was comfortable at 5.7 times as on March 31, 2019 (8.2 times as on March 31, 2018). Given the strong liquidity that IBHFL maintains on a steady-state basis, net gearing was 4.9 times as on December 31, 2018, and has further reduced to 4.0 times as of March 31, 2019 (7 times as on March 31, 2018). The company has demonstrated strong ability to raise capital as and when required. CRISIL believes healthy capitalisation will continue to support its overall financial risk profile over the medium term.
 
Weakness
* Susceptibility to asset quality risks arising from the commercial credit portfolio
Asset-quality risks arising from a sizeable large-ticket commercial credit portfolio persist, and could impact the company's portfolio performance in a continuing economic downturn scenario. The commercial segment of developer loans mainly comprises lease rental discounting and construction finance of around Rs 20,000 crore as on March 31, 2019. Given the chunkiness of loans (average ticket size of Rs 150 crore), even few large accounts experiencing stress, could impact asset quality. While there is no immediate impact on IBHFL's portfolio, as disbursements to the commercial credit segment are curtailed, any near-term impact on the segment and IBHFL remains to be seen. Nevertheless, the company follows prudent lending practices and ensures sufficient collateral cover. While delinquencies in the commercial lending portfolio remain low, it will remain a key monitorable.
 
Given the evolving liquidity situation for non-banks since September 2018, asset quality in segments such as developer loans and LAP would also be monitored closely, as such borrowers are highly sensitive to prolonged liquidity tightness. While strong credit appraisals and risk-mitigating mechanisms have curbed delinquencies, asset quality issues could resurface if access to funding does not stabilise.
 
Access to bank funding, via securitisation and traditional lending channels, offers much-needed support to non-banks like IBHFL. Nevertheless, growth in the non-retail businesses would be curtailed for non-banks in the medium term, given their propensity to conserve liquidity and slow down disbursements in this space.  
 
IBHFL has also reduced disbursements in the wholesale segment, and has adopted a cautious approach for the retail segment. Any weakening in asset quality, specifically in the wholesale lending book and its impact on profitability, remains a monitorable.
Liquidity

CRISIL's analysis of IBHFL's asset liability maturity (ALM) profile as of March 2019, shows a cumulative positive gap (cumulative inflows over cumulative outflows) in the up to 1-year bucket. The company continues to shore up liquidity, and has reduced its reliance on commercial paper funding and elongated its liability duration. Outstanding against short-term commercial paper comprised only 1% of borrowings as of June 2019, vis-a-vis 15% as of September 2018. Liquidity remains comfortable as IBHFL maintains a sufficient amount as liquid investments at any point in time, to cover the debt repayments for the next twelve months at a minimum.
 
As on June 30, 2019, against the total debt of ~Rs 5,000 crore maturing till September 30, 2019, IBHFL had total liquidity available of Rs 28,511 crore, as investments in mutual funds and certificate of deposits of Rs 11,930 crore, bank balances/fixed deposits of Rs 11,802 crore and other investments of Rs 4,779 crore. IBHFL continues to tap the debt capital market for fresh issuances. Around Rs 1,060 crore and Rs 875 crore were raised through commercial paper and bonds, respectively, in the quarter ended June 30, 2019. Further, IBHFL has also raised Rs 1,491 crore through securitisation and Rs 6,598 crore from banks [including ECBs] in the same period.

About the Company

Indiabulls Financial Services Ltd was reverse-merged with IBHFL from April 1, 2012. The process was completed on March 8, 2013, following the Delhi High Court's approval on December 12, 2012. After the merger, IBHFL continues to operate as a housing finance company registered with the National Housing Bank. The company, along with its subsidiary Indiabulls Commercial Credit Ltd (ICCL), will continue to focus on asset classes such as mortgages and commercial credit. As on March 31, 2019, the promoter group held 21.5% stake in the company.
 
For fiscal 2019, IBHFL had a profit after tax (PAT) of Rs 4,091 crore on a total income of Rs 17,027 crore, compared with a PAT of Rs 3,895 crore and total income of Rs 14,959 crore in the previous fiscal.

Key Financial Indicators
As on/for the year ended March 31 Unit 2019 2018
Total assets Rs cr 130104 132603
Total income Rs cr 17027 14959
Profit after tax Rs cr 4091 3895
Gross NPA % 0.88 0.78
Return on average assets % 3.1 3.1
 

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  crore) Outstanding rating with outlook
NA Non-convertible debentures* NA NA NA 16344.6 CRISIL AAA/Watch Negative
NA Subordinated debt* NA NA NA 1000 CRISIL AAA/Watch Negative
NA Retail bond issue* NA NA NA 15000 CRISIL AAA/Watch Negative
INE148I07IE4 Non-convertible debentures 27-Dec-17 NA 30-Aug-19 200.00 CRISIL AAA/Watch Negative
INE148I07JJ1 Non-convertible debentures 04-Oct-18 NA 04-Nov-19 350.00 CRISIL AAA/Watch Negative
INE148I07JP8 Non-convertible debentures 31-Dec-18 NA 31-Dec-19 50.00 CRISIL AAA/Watch Negative
INE148I07IO3 Non-convertible debentures 24-Jan-18 NA 24-Jan-20 300.00 CRISIL AAA/Watch Negative
INE148I07JG7 Non-convertible debentures 21-Aug-18 NA 21-Feb-20 1000 CRISIL AAA/Watch Negative
INE148I07JO1 Non-convertible debentures 31-Dec-18 NA 28-Feb-20 100.00 CRISIL AAA/Watch Negative
INE148I07JM5 Non-convertible debentures 11-Dec-18 NA 11-Jun-20 250.00 CRISIL AAA/Watch Negative
INE148I07JB8 Non-convertible debentures 15-Jun-18 NA 15-Jun-20 500 CRISIL AAA/Watch Negative
INE148I07II5 Non-Convertible Debentures 27-Dec-17 NA 12-Feb-21 75.00 CRISIL AAA/Watch Negative
INE148I07IS4 Non-Convertible Debentures 19-Mar-18 NA 19-Mar-21 600.00 CRISIL AAA/Watch Negative
INE148I07IH7 Non-convertible debentures 27-Dec-17 NA 06-Apr-21 275.00 CRISIL AAA/Watch Negative
INE148I07IW6 Non-convertible debentures 23-Mar-18 NA 08-Apr-21 132.00 CRISIL AAA/Watch Negative
INE148I07IK1 Non-convertible debentures 28-Dec-17 NA 08-Apr-21 375.00 CRISIL AAA/Watch Negative
INE148I07IT2 Non-convertible debentures 19-Mar-18 NA 15-Jun-21 347.50 CRISIL AAA/Watch Negative
INE148I07IV8 Non-convertible debentures 23-Mar-18 NA 22-Jun-21 300.00 CRISIL AAA/Watch Negative
INE148I07IL9 Non-convertible debentures 29-Dec-17 NA 09-Jul-21 340.00 CRISIL AAA/Watch Negative
INE148I07IM7 Non-convertible debentures 29-Dec-17 NA 22-Oct-21 250.00 CRISIL AAA/Watch Negative
INE148I07JL7 Non-convertible debentures 29-Nov-18 NA 29-Dec-21 200.00 CRISIL AAA/Watch Negative
INE148I07JN3 Non-convertible debentures 31-Dec-18 NA 31-Dec-21 500.00 CRISIL AAA/Watch Negative
INE148I07JA0 Non-convertible debentures 5-Jun-18 NA 28-Apr-22 49.9 CRISIL AAA/Watch Negative
INE148I07JI3 Non-convertible debentures 21-Aug-18 NA 10-Jun-22 25 CRISIL AAA/Watch Negative
INE148I07IN5 Non-convertible debentures 29-Dec-17 NA 29-Dec-22 1,000.00 CRISIL AAA/Watch Negative
INE148I07IY2 Non-convertible debentures 30-May-18 NA 30-May-23 100 CRISIL AAA/Watch Negative
INE148I07IZ9 Non-convertible debentures 5-Jun-18 NA 5-Jun-23 100 CRISIL AAA/Watch Negative
INE148I07JE2 Non-convertible debentures 30-Jul-18 NA 28-Jul-23 250 CRISIL AAA/Watch Negative
INE148I07JR4 Non-convertible debentures 25-Jan-19 NA 25-Jan-24 330.00 CRISIL AAA/Watch Negative
INE148I07IP0 Non-convertible debentures 24-Jan-18 NA 24-Jan-25 225.00 CRISIL AAA/Watch Negative
INE148I07JH5 Non-convertible debentures 21-Aug-18 NA 21-Feb-28 1 CRISIL AAA/Watch Negative
INE148I07IQ8 Non-convertible debentures 22-Feb-18 NA 22-Feb-28 3,060.00 CRISIL AAA/Watch Negative
INE148I07IR6 Non-convertible debentures 23-Feb-18 NA 23-Feb-28 25.00 CRISIL AAA/Watch Negative
INE148I08306 Subordinated debt 27-Mar-18 NA 27-Mar-28 1,500.00 CRISIL AAA/Watch Negative
INE148I07JF9 Non-convertible debentures 6-Aug-18 NA 4-Aug-28 1025 CRISIL AAA/Watch Negative
INE148I07JK9 Non-convertible debentures 22-Nov-18 NA 22-Nov-28 1,000.00 CRISIL AAA/Watch Negative
INE148I07JQ6 Non-convertible debentures 15-Jan-19 NA 15-Jan-29 700.00 CRISIL AAA/Watch Negative
NA Term loan NA NA 22-Oct-20 144.44 CRISIL AAA/Watch Negative
NA Cash credit facility NA NA NA 5200 CRISIL AAA/Watch Negative
NA Proposed long-term bank loan facility NA NA NA 18156.54 CRISIL AAA/Watch Negative
NA Short-term bank loan facility NA NA NA 1049 CRISIL A1+
NA Commercial paper programme NA NA 7-365 days 25000# CRISIL A1+
NA Short-term non-convertible debenture NA NA NA 1000 CRISIL A1+
*Not yet issued
#Total rated amount
 
Details of Rating Withdrawn
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size
(Rs crore)
INE148I07IX4 Non-convertible debentures 25-May-18 NA 27-May-19 200
INE148I07JC6 Non-convertible debentures 15-Jun-18 NA 17-Jun-19 1800
INE148I07JD4 Non-convertible debentures 26-Jun-18 NA 27-Jun-19 125
 
Annexure - List of entities consolidated
Consolidated Extent of consolidation Rationale for consolidation
Indiabulls Insurance Advisors Ltd Full Subsidiary
Indiabulls Capital Services Ltd Full Subsidiary
Indiabulls Commercial Credit Ltd Full Subsidiary
IBulls Sales Ltd Full Subsidiary
Indiabulls Advisory Services Ltd Full Subsidiary
Indiabulls Collection Agency Ltd Full Subsidiary
Indiabulls Asset Holding Company Ltd Full Subsidiary
Indiabulls Asset Management Company Ltd Full Subsidiary
Indiabulls Trustee Company Ltd Full Subsidiary
Indiabulls Holdings Ltd Full Subsidiary
Nilgiri Financial Consultants Ltd Full Subsidiary
Indiabulls Venture Capital
Management Company Ltd		 Full Subsidiary
Indiabulls Venture Capital Trustee Company Ltd Full Subsidiary
Acorn OakNorth Holdings Ltd Partial Associate
Indiabulls Asset Management Mauritius c/o Citco (Mauritius) Ltd Full Subsidiary
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  25000.00  CRISIL A1+  09-04-19  CRISIL A1+  29-05-18  CRISIL A1+  15-12-17  CRISIL A1+  26-12-16  CRISIL A1+  CRISIL A1+ 
            21-03-18  CRISIL A1+  29-11-17  CRISIL A1+       
                11-09-17  CRISIL A1+       
                29-04-17  CRISIL A1+       
Non Convertible Debentures  LT  14035.40
15-07-19  		CRISIL AAA/(Watch) Negative  09-04-19  CRISIL AAA/Watch Developing  29-05-18  CRISIL AAA/Stable  15-12-17  CRISIL AAA/Stable  26-12-16  CRISIL AA+/Stable  CRISIL AA+/Stable 
            21-03-18  CRISIL AAA/Stable  29-11-17  CRISIL AAA/Stable       
                11-09-17  CRISIL AA+/Positive       
                29-04-17  CRISIL AA+/Positive       
Retail Bond  LT  0.00
15-07-19  		CRISIL AAA/(Watch) Negative  09-04-19  CRISIL AAA/Watch Developing  29-05-18  CRISIL AAA/Stable  15-12-17  CRISIL AAA/Stable  26-12-16  CRISIL AA+/Stable  CRISIL AA+/Stable 
            21-03-18  CRISIL AAA/Stable  29-11-17  CRISIL AAA/Stable       
                11-09-17  CRISIL AA+/Positive       
                29-04-17  CRISIL AA+/Positive       
Short Term Non Convertible Debenture  ST  0.00
15-07-19  		CRISIL A1+  09-04-19  CRISIL A1+  29-05-18  CRISIL A1+  15-12-17  CRISIL A1+  26-12-16  CRISIL A1+  CRISIL A1+ 
            21-03-18  CRISIL A1+  29-11-17  CRISIL A1+       
                11-09-17  CRISIL A1+       
                29-04-17  CRISIL A1+       
Subordinated Debt  LT  1500.00
15-07-19  		CRISIL AAA/(Watch) Negative  09-04-19  CRISIL AAA/Watch Developing  29-05-18  CRISIL AAA/Stable  15-12-17  CRISIL AAA/Stable  26-12-16  CRISIL AA+/Stable  CRISIL AA+/Stable 
            21-03-18  CRISIL AAA/Stable  29-11-17  CRISIL AAA/Stable       
                11-09-17  CRISIL AA+/Positive       
                29-04-17  CRISIL AA+/Positive       
Fund-based Bank Facilities  LT/ST  24549.98  CRISIL AAA/(Watch) Negative/ CRISIL A1+  09-04-19  CRISIL AAA/Watch Developing/ CRISIL A1+  29-05-18  CRISIL AAA/Stable/ CRISIL A1+  15-12-17  CRISIL AAA/Stable/ CRISIL A1+  26-12-16  CRISIL AA+/Stable/ CRISIL A1+  CRISIL AA+/Stable/ CRISIL A1+ 
            21-03-18  CRISIL AAA/Stable/ CRISIL A1+  29-11-17  CRISIL AAA/Stable/ CRISIL A1+       
                11-09-17  CRISIL AA+/Positive/ CRISIL A1+       
                29-04-17  CRISIL AA+/Positive/ CRISIL A1+       
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
Cash Credit 5200 CRISIL AAA/Watch Negative Cash Credit 5200 CRISIL AAA/Watch Developing 
Long Term Bank Facility 144.44 CRISIL AAA/Watch Negative Long Term Bank Facility 144.44 CRISIL AAA/Watch Developing 
Proposed Long Term Bank Loan Facility 18156.54 CRISIL AAA/Watch Negative Proposed Long Term Bank Loan Facility 18156.54 CRISIL AAA/Watch Developing 
Short Term Bank Facility 1049 CRISIL A1+ Short Term Bank Facility 1049 CRISIL A1+
Total 24549.98 -- Total 24549.98 --
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Finance Companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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