Rating Rationale

Strengths
* Support from largest shareholder, Life Insurance Corporation of India (LIC), the public-sector insurer and a dominant player in the Indian life insurance space.
LIC is the single-largest shareholder in LIC Housing with a stake of 40.31% as on June 30, 2020. LIC Housing benefits from LIC's strong brand equity, access to its agency network for origination of loans, and funding support. The company raised equity capital of Rs 810 crore in March 2012 from LIC to support growth plans. Additionally, a large number of LIC Housing's senior management personnel are on deputation from the parent. CRISIL believes LIC Housing will continue to benefit over the medium term from strong support from LIC in terms of ownership, funding, common branding, and managerial inputs.

* Adequate capitalisation
LIC Housing's capitalisation is adequate and supported by our expectation of support from largest shareholder, in case of any requirement. It had a large capital base of Rs 18193 crore as on March 31, 2020 (Rs 16259 crore as on March 31, 2019). As on Sept 30, 2019, Tier-I and overall capital adequacy ratios were 12.49% and 14.37%, respectively (12.30% and 14.36%, respectively, as on March 31, 2019). However, gearing, at 10.5 times as on March 31, 2020 (same as that on March 31, 2019), was higher than that of peers.

As notified by NHB, housing finance companies (HFCs) will have to raise their capital adequacy to 15% of their risk-weighted assets by March 2022, from 12% now. Since LIC Housing's overall capital adequacy ratio stood at 13.89% as on March 31, 2020, CRISIL believes that it will have to raise equity funds in the future to maintain adequate cushion over the regulatory minimum requirements. Given the fact that growth outlook for the sector is lower than previous year the capital consumption may be lower than expected.

* Diversified resource profile
LIC Housing has a diversified resource profile and benefits from the strong brand image of its parent, LIC, as reflected in competitive borrowing cost and diverse set of investors. As on March 31, 2020, bonds accounted for 65% of the total borrowing; loans from banks at 22%; and other sources (mainly refinance from National Housing Bank and fixed deposits & Sub Debt.) at 9% while commercial paper share was at 4%. Furthermore, flexibility to raise funds from the parent supports LIC Housing's resource profile. Borrowing cost reported was at 8.2% for fiscal 2020 (8.4% in fiscal 2019, 7.55% in fiscal 2018 and 8.03% in fiscal 2017).

* Sound asset quality in the individual housing loan segment
Asset quality has been supported by the high share of individual home loans at 76.9% as of March 31, 2020 wherein the GNPAs have remained comfortable at 1.77% as on March 31, 2020 compared to 1.14% as of March 31, 2019.

However, overall asset quality metrics remain modest with gross NPA ratio of 2.86% as on March 31, 2020 (1.54% as on March 31, 2019). The inching up was primarily on account of slippages from the developer loans portfolio. The share of the same to the overall AUM remains low at 6.8% as of March 31, 2020.

Amidst the current environment, the loans against property portfolio (16.3% of AUM as of March 31, 2020) too witnessed deterioration with GNPA inching to 4.54% as of March 31, 2020 compared to 2.0% as of March 31, 2019.

While the company has initiated recovery programmes for all segments and had witnessed some improvements before the imposition of the lockdown in March 2020, any further recovery would be hinging upon the recovery in the macro-economic environment and resumptions of operations in a business as usual scenario.

While there could be slippages in the developer loans and LAP portfolio amidst the current environment, given the higher share of individual home loans, asset quality metrics are expected to remain modest. Any significant deterioration in asset quality is a key monitorable.

Weakness
* Moderate profitability due to presence in lower risk salaried home loan segment
Company has high proportion of individual home loans to salaried customers wherein competition remains high thereby restricting company's ability to charge higher yields. Further, the company also has lower proportion of relatively higher-yielding non-housing loan book compared to other players.

Profitability of the company remains moderate with de-growth of around 1.3% year on year and RoA of 1.2% for fiscal 2020 (1.3% for corresponding period of fiscal 2019). The company has net interest margin (NIMs) of around 2.3% for fiscal 2020. Credit cost of the company has remained stable over the years because majority of its portfolio is in the salaried individual home loan segment. However, credit cost has increased to 0.5% for fiscal 2020 compared to 0.2% for full fiscal 2019 mainly on account of high provisions in the developer loan portfolio. Any significant increase in credit cost and thereby deterioration in profitability will remain a key monitorable.

* Intense competition in the housing finance segment
LIC Housing is a leading player in the housing finance market; however, the company continues to face intense competition from banks, which account for a dominant share of the market. CRISIL believes LIC Housing will remain a leading housing finance company and maintain its market share, but will also face price-based competition over time amid increased focus by banks on this segment.