Indiabulls Commercial Credit Limited Ratings reaffirmed at 'CRISIL AA / CRISIL A1+ '; outlook revised to 'Stable'
Rating Action
#public issue of retail secured redeemable non-convertible debenture @ public issue of retail unsecured redeemable non-convertible debenture 1 crore = 10 million Refer to annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its rating outlook on the long-term debt instruments and bank facilities of Indiabulls Commercial Credit Limited (ICCL; wholly owned subsidiary of Indiabulls Housing Finance Limited [IBHFL; rated ‘CRISIL AA/Stable/CRISIL A1+’]) to 'Stable' from 'Negative' while reaffirming the rating at ‘CRISIL AA’. The rating on the commercial paper programme has been reaffirmed at 'CRISIL A1+.
Earlier, on March 24, 2020, CRISIL Ratings had revised its rating outlook on the long-term debt instruments and bank facilities of ICCL to ‘Negative’ from 'Stable', while reaffirming the rating at ‘CRISIL AA’. That revision in outlook was to reflect the impact of continued share price fall of IBHFL at that time on the financial flexibility of the company, especially in the context of the uncertainty in the macro-environment on account of fallout from Novel Coronavirus (Covid-19) situation and associated challenges, especially with respect to raising funds from a diverse set of investors. Furthermore, there was potential for the company’s asset quality to get significantly affected as cash flows of the underlying borrowers were expected to be stretched due to the pandemic and linked lockdowns.
The current revision in outlook back to ‘Stable’ reflects IBHFL’s strengthened capital position and expected further capital mobilization in the medium term, continued fund raising which has benefitted from various schemes announced by Reserve Bank of India (RBI) and Government of India and the lower than expected inching up in IBHFL’s non-performing assets (NPAs) in the retail book. The last year or so have also seen some correction in the share price of IBHFL.
From an asset quality perspective, while there is an uptick in gross NPA, it is lower than what was earlier envisaged. The reported[1] and pro-forma[2] gross NPA stood at 1.75% and 2.44%, respectively, as on December 31, 2020 (1.84% as of March 31, 2020). Furthermore, gross NPA in the housing loans and loans against property (LAP) segment {together constituting 87% of assets under management (AUM) as on December 31, 2020} continues to remain at comfortable levels. The collections have also picked up pace with overall collection efficiency at 98.8% for the month of February 2021 which has almost reached pre-Covid levels. The extent of one-time debt restructuring under the Covid-19 relief scheme has been also limited and was around 1% of the AUM. However, asset quality in commercial credit (comprising of construction finance and lease rental discounting based loans to real estate developers) continues to remain vulnerable with any slippages negatively impacting overall asset quality given the chunky nature of this segment. While proportion of commercial credit exposures in total AUM has reduced to 13% as on December 31, 2020 from 21% as on March 31, 2018, its performance will remain a key monitorable.
During fiscal 2021, IBHFL has further strengthened its capital position. It raised Rs 683 crore equity via qualified institutional placement (QIP) and also accrued Rs 1,988 crore by selling bulk of its investment in OakNorth Bank. With this, the overall capital adequacy ratio (CAR) for the company increased to 30.5% as on December 31, 2020 from 27.1% as on March 31, 2020. Adjusted gearing has also come down to 5.0 times as on December 31, 2020 from 6.2 times as on March 31, 2020. It is also expected that there will be further capital raise of at least around USD 300 million over the medium term.
On the fund raising side, IBHFL has been able to raise reasonable amount of debt. The company raised Rs 23,300 crore in the eleven months till February 28, 2021. Out of this, 12% was through bonds (predominantly through TLRO[3] and PCG[4] schemes). While a part of the bank funding has been roll-over of working capital or cash credit lines, the pace of long-term funding from banks has improved in recent months. In addition, in March 2021, the company received confirmation for additional Rs 2,000 crore term loans, and has another around Rs 2,500 crore of sanctions in the pipeline. Continued access to funding will be a key rating monitorable.
The ratings at the current level continue to reflect CRISIL Ratings’ expectation that IBHFL will maintain its strong capitalisation, with healthy cover for asset-side risks, comfortable asset quality in the retail segments and sizeable presence in retail mortgage finance. The ratings also factor in the company’s susceptibility to asset quality risks arising from the commercial real estate portfolio and ability to successfully transition to its planned new funding-light business model with focus on AUM growth instead of assets growth.
Rating on the bank facilities and debt instruments of ICCL continue to reflect the ICCL's strategic importance to, and expectation of support from its parent, IBHFL and its comfortable capitalisation. These strengths are partially offset by high proportion of exposure to large-ticket commercial credit portfolio.
CRISIL Ratings has withdrawn its rating on Rs 8.83 crore non-convertible debentures (public issue of retail secured redeemable non-convertible debenture) on redemption, in line with its withdrawal policy. [1] Reported NPAs factor in the Supreme Court’s dispensation on the standstill of NPA recognition [2] Pro-forma NPAs do not factor in the Supreme Court’s dispensation on the standstill of NPA recognition [3] Targeted Long Term Repo Operations [4] Partial Credit Guarantee |
Analytical Approach The ratings reflect the support that ICCL receives from its parent, IBHFL given the strategic importance of the entity, shared name and 100% direct shareholding by the parent. Also, IBHFL and ICCL have extensive business, managerial and operational linkages common brand and being a wholly owned subsidiary, ICCL’s financials are consolidated with IBHFL’s. |
Key Rating Drivers & Detailed Description Strengths:
ICCL is an important subsidiary for IBHFL, as it undertakes loan against property and Commercial Real Estate business and supports IBHFL's product offering and revenue profile. Further, there exists strong operational and managerial integration between ICCL and IBHFL. The latter benefits from the robust retail franchise and nation-wide branch infrastructure of the parent. ICCL also has board representation from IBHFL. ICCL is the wholly own subsidiary of IBHFL and CRISIL Ratings believes IBHFL will provide both funding and capital assistance to ICCL if & when required. The extensive business and financial linkages, along with 100% holding and shared brand name, imply a support from IBHFL to ICCL.
ICCL is well capitalised, with networth and gearing of Rs 4,687 crore and 1.8 times, respectively, as on December 31, 2020. The overall and tier-I capital adequacy ratio stood at 32.0% and 34.6%, respectively, as on same date. Given the healthy asset quality, asset side risk cover also remains comfortable, with a networth to pro-forma net NPA ratio at 8 times as on December 31, 2020. Capitalisation is expected to remain comfortable backed by steady internal cash accrual, and capital support from IBHFL as and when needed.
Weaknesses:
Asset-quality risks arising from the sizeable large-ticket Commercial Real Estate portfolio persist, and could impact the company's portfolio performance in an economic downturn scenario. Given the chunkiness of loans in this segment (average ticket size of Rs 150 crore), stress in even a few large accounts could impact asset quality. Nevertheless, the company follows prudent lending practises and also ensures sufficient collateral cover against these loans. While the delinquencies in the commercial lending portfolio remains low, it will continue to be a key monitorable over the medium term. |
Liquidity: Strong CRISIL Ratings’ analysis of IBHFL’s asset liability maturity (ALM) profile as of September 30, 2020, shows a cumulative positive gap (cumulative inflows over cumulative outflows) in the up to 1-year bucket. The company has reduced its reliance on commercial paper funding and elongated its liability duration. It had nil commercial paper borrowings as of December 31, 2020, against 16% as of September 2018.
Liquidity remains strong as IBHFL maintains a sufficient amount of liquid investments at any point in time, to cover the debt repayments for the next twelve months. As on March 8, 2020, against total debt of around Rs 4,587 crore maturing till August 31, 2021, IBHFL had total liquidity of around Rs 18,000 crore in the form of investments in mutual funds, certificates of deposits, bank balances, fixed deposits and undrawn available sanctions. |
Outlook: Stable CRISIL Ratings believes ICCL will continue to benefit from the managerial, operational and financial linkages with IBHFL and will maintain its comfortable capitalisation. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company ICCL is a Non-Banking Finance Company (NBFC), registered with Reserve Bank of India (RBI). It was incorporated in 2006 and is a wholly owned subsidiary of IBHFL, with total assets under management (AUM) of Rs 14,398 crore as on December 31, 2020. The company, continues to focus on asset classes such as LAP and Commercial Real Estate. As of December 31, 2020 LAP constituted 52% of the book and remaining 48% was Commercial real Estate.
For the fiscal 2020, ICCL had a profit after tax (PAT) of Rs 20 crore on a total income of Rs 2,191 crore as against a PAT of Rs 323 crore on a total income of Rs 1,761 crore for the previous fiscal. During nine months ended December 31, 2020, ICCL reported PAT of Rs 278 crore on a total income of Rs 1,268 crore, compared with a PAT of Rs 510 crore and total income of Rs 1,694 crore during same period previous fiscal. |
About the Group 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 will continue to focus on asset classes such as mortgages and Commercial Real Estate. As on December 31, 2020, the promoter group held 21.7% stake in the company |
Key Financial Indicators
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Any other information: ICCL pro-forma gross NPAs and net NPAs stood at 5.44% and 3.89%, respectively, as on December 31, 2020. |
| 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)
*Not yet issued #public issue of retail secured redeemable non-convertible debenture @ public issue of retail unsecured redeemable non-convertible debenture
Annexure - Details of Rating Withdrawn
#public issue of retail secured redeemable non-convertible debenture |
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| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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