Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Strategic importance to, and expectation of strong financial support from, the parent, Credit Saison Co. Ltd., Japan: The Credit Saison group has been in the consumer finance business for over 7 decades, primarily offering credit cards and retail finance products. It has been in the credit card business since inception, with finance and other businesses being added to its portfolio since 2001. Given the track record of operations, Credit Saison is amongst the top credit card companies in Japan and also offers credit cards in alliance with leading businesses across different industries. The group currently has around 36 million cardholders under its portfolio. It currently operates in six verticals – payments, finance, leasing, real estate, entertainment and global. In order to ensure strong growth, the group has been expanding its operations globally and over the past seven years, it has established a presence in seven countries through its subsidiaries and affiliates. With consistent efforts towards growth via segmental and geographical diversification, the group has been able to reach an asset size (total receivables outstanding) of Rs 2,00,543 crore[1] as on September 30, 2024 (Rs 1,83,952 Crore [2] as on March 31, 2024), at a consolidated level.

The group has witnessed sustainable improvement in its capital and earnings profile, having consistently generated strong shareholder equity levels in the last 10 years, with the same remaining above 15% across years (barring March 2020, where it dropped to 14.4% during the pandemic). Shareholder equity of the group was 15.4% as on September 30, 2024 against 16.3% as on March 31, 2024 (15.4% in March 2023). Additionally, capitalisation metrics are comfortable, with networth of Rs 40,490crore [1] as on September 30, 2024 against Rs 39,533 crore[2] as on March 31, 2024, aided by sufficient internal accrual for the past several years. For fiscal 2024, the group reported profit after tax (PAT) of Rs 4,037 crore[2] as against Rs 2,715 crore[3] during fiscal 2023. PAT was Rs 1679 crore[1] for the first half of fiscal 2025.

The group plans to invest heavily towards geographical expansion, specifically in emerging markets, and aims to transform itself into a comprehensive life services group. In line with the overall strategy, India is one of the important markets where the group plans to scale up its business with a focus on consumer and MSME segments. Though Indian operations have commenced only from 2019, the group has already infused equity capital of Rs 2,027 crore, of which Rs 400 crore was infused in September 2023. Support from the parent is also visible in arranging debt funding to Indian operations via common Japanese bank relationships.

Further, the group maintains strong oversight on Indian operations, having deployed its senior management personnel on to the board of Kisetsu Saison India. The board is controlled by the parent with Mr Katsumi Mizuno and Mr Kosuke Mori as common board directors, and Mr Masaki Negishi & Kozutoshi Onoas director. Risk management policies, systems and processes used by Kisetsu Saison India are centrally approved by the parent.

Additionally, in March 2024, Kisetsu Saison India received equity of ~Rs 1,200 crore from Mizuho Bank, Japan and one of its subsidiaries, following which stake of the Credit Saison group came down to 83.65%. Nevertheless, the parent will retain a majority shareholding and exercise complete management control over the company. Shared brand and complete management control enhance the expectation of support from Credit Saison group, if needed. Any material disruption in Indian operations could, in Crisil Ratings’ view, have a significant impact on the reputation and franchise of the parent. Any change in the management control by, or expectation of support from, the Credit Saison group will remain a key rating sensitivity factor.

Strong capitalization: Capitalisation metrics of Kisetsu Saison India are strongly supported by regular equity infusions by the parent. Networth stood at Rs 3,706 crore and a gearing of 3.9 times, as on December 31, 2024 (networth of Rs 3,503 crore and gearing of 2.6 times as on March 31, 2024). This is following equity infusion of ~Rs 400 crore in September 2023, and ~Rs 1,200 crore by Mizuho Bank, Japan and one of its subsidiaries (a part of the Mizuho Financial Group), in March 2024.

Given the growth plans, the company will continue to raise funds while scaling up operations. It plans to maintain a steady-state net gearing of below 5 times in the medium term.

[1] Converted at 1 JPY = 0.58 (as on September 30, 2024)

[2] Converted at 1 JPY = 0.55 INR (as on March 31, 2024)

[3] Converted at 1 JPY = 0.62 INR (as on March 31, 2023)

Weaknesses:

Nascent stage of operations with limited seasoning of portfolio: Kisetsu Saison India started its operations in 2019, under two verticals – wholesale lending and co-lending / fin-tech partnerships. Under wholesale lending, the company lends majorly to other NBFCs, focused on consumer and MSME segments, whereas under co-lending / fin -tech partnerships, the company ties up with other NBFCs/fin-tech players to lend to consumers or MSMEs, at an agreed ratio. Since February 2022, the company also started direct lending to MSMEs, through a branch-led business model. As operations commenced in September 2019, the operations are still at a nascent stage.

Kisetsu Saison India’s loan book grew 58% (annualized) to Rs 16,775 crore as on December 31, 2024, from Rs 11,705 crore as on March 31, 2024 (Rs 5,939 crore as on March 31, 2023).

As on December 31, 2024, co-lending / fin -tech partnerships constituted 52% of the overall loan book, followed by the wholesale portfolio (16%) and direct lending (32%). Further, the Company has also started small ticket loan against property (LAP) in the last quarter of fiscal 2024, the share of which remains negligible at present. The share of direct lending by the company to overall loan book has increased to 32% as on December 31, 2024 from 26% as on March 31, 2024 (16% as on March 31, 2023).

Nevertheless, along with the growing portfolio, Kisetsu Saison India has also set up strong risk management systems and policies, and constantly monitors borrowers and its co-lending /fin-tech partners, right from the stage of screening and selection. The company has a well-defined process, right from shortlisting the borrower/partner to monitoring the portfolio performance. While in the wholesale vertical, it hypothecates the receivables, in the co-lending / fin-tech partnerships portfolio, it gets a credit enhancement cover in the form of default-loss guarantee (DLG) from the partner entities.

As a result, asset quality metrics in terms of 90+ dpd were comfortable at 1.4% as on December 31, 2024 against 0.84% as on March 31, 2024 (0.49% as on March 31, 2023). Including writeoff, the 90+dpd was 2.3% as on December 31, 2024 against 1.32% as on March 31, 2024.

However, with scale up of the less seasoned direct lending book, sustenance of asset quality metrics remains a key monitorable.

Modest earnings profile: The earnings profile remain constrained due to elevated operating expenses (opex), given the nascent stage of operations. In fiscal 2024, the return on managed assets (RoMA) declined to 1.3% from 1.7% in previous fiscal, primarily on account of rise in credit cost (as a percentage of average managed assets), to 2% (1% in fiscal 2023), primarily on account of write-offs towards delinquent accounts and increased provisioning as share of the direct lending book has increased. Operating expenses, although marginally reduced to 4.9% for fiscal 2024 from 5.2% in fiscal 2023, remain elevated.

In the first nine months of fiscal 2025, Kisetsu Saison’s yields improved to 17.6% as against 15.6% in fiscal 2024, which is attributable to growth in direct lending book. However, this has been partly offset by inch up in opex and credit costs. The company’s opex increased to 5.5% in the first nine months of fiscal 2025 from 4.9% in fiscal 2024. It is expected to remain high in the medium term, as the company continues to invest more on branch expansions (for the direct lending business), technology, employees and risk management. The company’s credit costs have also increased to 3.1% in the first nine months of fiscal 2025 as against 2% in fiscal 2024 due to increased provisioning requirement. As a result, annualized ROMA stood modest at 1.4% in the first nine months of fiscal 2025. Thus, improvement in earnings profile, along with scale up in operations, remains a key sensitivity factor.