Indiabulls Housing Finance Limited 'CRISIL AA/Stable' assigned to Subordinated Debt
Rating Action
*Includes Secured NCD and/or Unsecured Subordinated Debt Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. 1 crore = 10 million Refer to annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AA/Stable’ rating to the Rs 500 crore subordinated debt and reaffirmed its ratings on the debt instruments and bank facilities of Indiabulls Housing Finance Ltd (IBHFL). The rating on Rs 454.91 crore retail bonds have been withdrawn given nil outstanding against the same, in line with the withdrawal policy of CRISIL Ratings.
The ratings continue to reflect strong capitalisation of IBHFL, with healthy cover for asset-side risks, comfortable asset quality in the retail segment and sizeable presence in retail mortgage finance. These strengths are partially offset by the need to demonstrate a successful transition to its planned new funding-light business model as well as the susceptibility of asset quality to risks arising from the commercial real estate portfolio. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of IBHFL and its subsidiaries. This is because of substantial operational and management integration, common promoters and shared brand.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Capitalisation is marked by sizeable networth of Rs 17,576 crore as on June 30, 2023, supported by healthy internal cash accrual. Accretion of Rs 1,988 crore from sale of bulk of its investment in OakNorth Bank in fiscal 2021 also strengthened the capital position. Networth coverage for net non-performing assets (NPAs) was comfortable at around 15.7 times as on June 30, 2023. Further, consolidated Tier-1 capital adequacy ratio (CAR) was healthy at 26.7%, as was overall CAR at 31.2%. Consolidated on-book gearing was comfortable at 2.9 times as on June 30, 2023 (3.0 times as on March 31, 2023). Given the strong liquidity that IBHFL maintains on a steady-state basis, net gearing was 2.2 times as on March 31, 2023 (2.6 times a year ago).
The company has demonstrated strong ability to raise capital including the Rs 683 crore equity raised through qualified institutional placement in fiscal 2021 and Rs 293 crore through stake sale in OakNorth Bank in fiscal 2022. Strong capitalisation should continue to support the overall financial risk profile.
IBHFL reported gross non-performing assets (GNPAs) of 2.87% as on June 30, 2023, compared to 2.86% as on March 31, 2023 (3.21% a year ago). Reduction in GNPAs over fiscal 2022 has been driven by improvement in asset quality (GNPAs) of the developer loan book to 9.06% as on March 31, 2023, from 13.33% a year ago. GNPAs in the home loans and loan against property (LAP) segments increased to 1.64% and 3.40%, respectively, on March 31, 2023, from 1.48% and 2.94% as on March 31, 2022. Nevertheless, overall asset quality improved in the first quarter of fiscal 2024 and remains comfortable in these segments (together forming 87% of assets under management [AUM] as on June 30, 2023) with GNPAs at 1.60% and 3.52%, respectively. The increase in absolute amount of GNPAs within these segments, over fiscal 2023, was insignificant. However, due to de-growth in the loan book, the reported numbers (in percentage terms) have inched up.
With a few high-ticket slippages in the commercial credit book over the past few years and continued traction in refinancing of this portfolio resulted in its de-growth, GNPAs in this segment remain elevated at 9.28% as on June 30, 2023 (9.06% as on March 31, 2023)
Nevertheless, the risk-mitigating measures of the company are prudent, in the form of conservative loan-to-value ratios (averaging around 65%) in the LAP segment, and emphasis on collateral with sufficient cover in the commercial real estate segment. However, any sharp increase in NPAs, mainly in the commercial credit portfolio, and its impact on profitability will remain key rating sensitivity factors.
The total AUM of IBHFL stood at Rs 65,787 crore as on June 30, 2023. Share of housing loans within the overall AUM increased to 72% as on June 30, 2023, from 50% as on March 31, 2015. The LAP portfolio accounted for 16% of the overall AUM as on June 30, 2023, with the remaining comprising commercial credit. The proportion of housing loans and LAP is expected to increase further over the medium term.
Overall AUM has declined by 10% year-on-year as on June 30, 2023, led by lower disbursements as well as higher prepayments and sell-down in the commercial credit book. This is because of the current business transition towards building a more granular portfolio. The overall disbursements during fiscal 2023 were Rs 14,042 crore (Rs 11,091 crore during fiscal 2022) as the market picked up pace post the Covid-19 pandemic.
Revival in the overall AUM growth may begin in fiscal 2024. Over the medium term, share of own book in the total AUM would continue to decline as the company remains focused on co-lending. Nonetheless, its overall presence in the retail mortgage finance market should remain sizeable.
Weaknesses:
The management has recalibrated its business model, under which IBHFL is gradually moving towards a less risky and asset-light framework, wherein disbursements will primarily be in the housing loans and LAP segments (with a potential 60:40 split), with a low proportion of incremental disbursals in the developer finance portfolio. Further, on a steady-state basis, of the overall disbursals, a significant proportion will be either co-originated or sold down to banks.
IBHFL has started working towards this new model and thus far, entered into a co-origination agreement with eight financial institutions. Disbursements amounting to Rs 7,844 crore were done in fiscal 2023 under these agreements. However, ability of the management to increase the disbursement pace, establish tie-ups with multiple banks and successfully scale-up this model, while maintaining healthy profitability and asset quality is yet to be witnessed. However, the company has demonstrated good execution capabilities in scaling up businesses in the past.
While earnings may decline from levels seen in the recent past, it will be supported by income from co-origination, off-balance sheet portfolio, and from spread on sold-off loans. Further, this will be commensurate with the more granular, lower-risk portfolio, which will be the focus under the new business model. In the recent past, earnings were impacted on account of decline in AUM. However, it stabilised in fiscal 2023 due to increase in income from other sources. Overall, return on assets (RoA) of IBHFL improved to 1.4%[1] during fiscal 2023 and 1.6% (annualised) for the quarter ended June 30, 2023, from 1.3% for fiscal 2022 and 1.5% (annualised) for the quarter ended June 30, 2022.
Asset-quality risks arising from a sizeable, large-ticket commercial credit portfolio of Rs 7,573 crore as on June 30, 2023, persist, and could impact the portfolio performance. This portfolio exhibits high concentration (average ticket size of Rs 150 crore), with the top 10 exposures forming 62% of the corporate AUM and having a median rating of B/BB. Thus, even a few large accounts experiencing stress could impact the overall asset quality.
The share of commercial credit in overall AUM decreased over the last few years to 13% on June 30, 2023, from 17% on March 31, 2019. The management has launched an alternative investment fund (AIF) platform for this segment wherein Rs 200 crore has been disbursed to a leading developer. Further, the process of filing for regulatory approvals is underway for launching two more AIFs. Going forward, the company may continue to do selective lending to existing borrowers in this space.
However, any weakening in asset quality, specifically in the commercial real estate book and its impact on profitability, remains a monitorable. [1] In the past few years, IBHFL has been setting apart by way of transfer to Additional Reserve Fund amounts |
Liquidity: Strong Analysis of the asset liability maturity profile of IBHFL dated March 31, 2023, shows a cumulative positive gap (cumulative inflows over cumulative outflows) in the up to one-year bucket. The company has reduced its reliance on commercial paper funding and extended its liability duration. It had nil commercial paper borrowing as on June 30, 2023, against 16% overall borrowing as on September 30, 2018.
Liquidity remains strong as IBHFL maintains adequate liquidity at any point in time, to cover 90-100% of debt repayment for the next 12 months. As on June 30, 2023, IBHFL had total liquidity of around Rs 7,823 crore in the form of investments in mutual funds, certificates of deposits, bank balances, fixed deposits and undrawn available sanctions, against total debt of around Rs 8,566 crore due for repayment till June 30, 2024 (of which Rs 4,821 is due till September 30, 2023).
Fund raising has been improving. The company raised around Rs 19,538 crore in fiscal 2023 and Rs 8,280 crore in the first quarter of fiscal 2024 as debt resources. While a part of the bank funding has come as roll-over of working capital or cash credit lines, the frequency of long-term funding from banks has improved in recent quarters including an external commercial borrowing of Rs 789 crore. Continued access to funding will be a key monitorable. |
Outlook: Stable CRISIL Ratings believes IBHFL will maintain strong capitalisation and comfortable asset quality in the retail segment and sizeable presence in the retail mortgage finance. |
Rating Sensitivity factors Upward factors
Downward factors
|
About the Company IBHFL is one of the larger housing finance companies (HFCs) in India. In its current legal form, its origins date back to April 1, 2012, when Indiabulls Financial Services Ltd was reverse merged with it. 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 an HFC registered with the National Housing Bank. The company, along with its subsidiary Indiabulls Commercial Credit Ltd, focuses on asset classes such as mortgages and commercial real estate. As part of an institutionalisation exercise, the promoter group held less than 1% stake in the entity as on June 30, 2023, and the company is professionally managed. Further, the company has initiated a rebranding exercise to simplify its corporate structure and signify the focus towards retail mortgage lending.
For fiscal 2023, IBHFL had profit after tax (PAT) of Rs 1,128 crore on total income of Rs 8,725 crore, compared with Rs 1,178 crore and Rs 8,994 crore, respectively, in the previous fiscal. During the quarter ended June 30, 2023, IBHFL reported PAT of Rs 296 crore on total income of Rs 1,916 crore, compared with Rs 287 crore and Rs 2,078 crore, respectively, during the corresponding period of the previous fiscal. |
Key Financial Indicators
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Not yet issued #Total rated amount @basis allotment amount
Annexure - Details of Rating withdrawn
|
Annexure – List of entities consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Criteria Details
|