Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AAA/Stable’ rating to Rs.3000 crore non convertible debentures of SMFG India Home Finance Company Limited (SMHFC) and reaffirmed its ratings on the bank facilities and other debt instruments at ‘CRISIL AAA/Stable/CRISIL A1+’.

 

CRISIL Ratings has also withdrawn its ratings on redeemed Non-Convertible Debentures aggregating Rs. 199 crore (See 'Annexure - Details of Rating Withdrawn’ for details) on receipt of requisite documentation for redemption and at client’s request. The withdrawal is in line with the CRISIL Ratings’ policy on withdrawal of ratings.

 

SMHFC, together with its parent, SMFG India Credit Company Ltd (SMICC), are together referred herein as SMICC group.

 

The ratings continue to factor in strong support from the parent, SMFG (rated ‘A-/Stable’ by S&P Global) on an ongoing basis and in the form of need-based equity/debt capital support and operational/managerial synergies.

 

CRISIL Ratings understands that SMFG is committed to providing equity capital or liquidity to support SMICC group’s growth plans or in the event of any exigency. The ratings also reflect the comfortable capitalisation profile and the scale up in the portfolio. However, asset quality remains vulnerable to slippages given the borrower profile and earnings profile also remains modest.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has considered the consolidated business and financial risk profiles of SMICC and its wholly owned subsidiary, SMHFC, together referred herein as SMICC group. The companies have strong operational and financial linkages, common senior management, and shared brand. The ratings also continue to factor in strong support from, SMFG, the parent, given the strategic importance of SMICC group to SMFG, full ownership, complete management control and shared brand name

 

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:

• Strategic Importance to, and expectation of continued support from, SMFG

The rating factors in expectations of continued support in the form of both equity and debt from SMFG (rated ‘A-/Stable’ by S&P Global) on an ongoing basis and in the event of any exigency. SMFG has senior level representation on the Board and various committees of SMICC group and is involved in key decisions taken by the company. India continues to be one of the focus markets for SMFG Group, with the group tapping into the Indian market through its presence via Sumitomo Mitsui Banking Corporation (SMBC) which is more entrenched towards large corporate lending, and SMICC, wherein the latter allows SMFG to build a comprehensive financial service offering and also cater to the retail segment, thus increasing its clientele base on a global demographic.

 

• Healthy Capitalisation

On a standalone basis, the net worth of SMHFC continues to remain comfortable at Rs 1190 crores as on September 30, 2024, as compared to Rs 990 crores as on March 31, 2024, driven by positive internal accruals during the period. Although, on a leverage front, adjusted gearing remains high at 7.9 times as on September 30, 2024, because of higher borrowings availed during the period, compared to lower addition in net-worth. In terms of capital adequacy ratio (CAR), as on September 30, 2024, SMHFC’s overall CAR stood at 19.8% with tier 1 CAR at 15.4%, well above the regulatory requirements.

 

At a group level also, the networth stood at Rs 5,709 crore as on March 31, 2024, with adjusted gearing at 6.8 times as on March 31, 2024 (6.6 times as on March 31, 2023). The group follows a conservative capitalisation policy by maintaining a buffer over the regulatory capital requirement based on a stress test. CRISIL Ratings does not expect any change in the capital philosophy of the group, and capitalisation metrics is expected to continue to remain at healthy levels going forward.

 

• Increasing scale of business

The AUM of the group increased by ~19% (annualized) to Rs 49,788 crore as on September 30, 2024, as against Rs 45,441 crore as on March 31, 2024. The growth was broad based across segments with personal loans (including digital lending) constituting 44% of the AUM followed by loans against property (LAP, 29%), housing (12%) and the rest towards a mix of secured and unsecured product categories. Consequently, at the consolidated level, the share of unsecured loans stood at 54% as on September 30, 2024.

 

SMHFC’s AUM witnessed an annualized growth of ~23.2% during first half of fiscal 2025 to Rs. 9,987 crore, as against Rs. 8,951 crore as on March 31, 2024, driven by higher demand for housing credit on a macro-economic basis.  Of this, housing loans constituted the bulk at 58%, followed by LAP at 33% and construction finance which was around 9%.

 

Weaknesses:

• Modest, albeit improving asset quality metrics

The group’s gross Stage 3 stood at 2.5% as on March 31, 2024, as compared to 3.2% as on March 31, 2023. On a standalone basis, SMHFC’s GNPA and NNPA stood at 2.6% and 1.7% as on September 30, 2024, as compared to 2.6% and 1.7% respectively, as on March 31, 2024.

 

Over the years, risk management processes and data analytics capability have been strengthened. Underwriting norms and monitoring mechanisms have been reinforced. The lending business has also been supported through investments in risk analytics and technology. Underwriting and collection norms have been tightened based on portfolio performance trends and early warning indicators. Nevertheless, the ability to manage collections and improve asset quality metrics while the portfolio scales up remains a key monitorable.

 

• Moderate profitability metrics

On a standalone basis, return on managed assets (RoMA) stood at 1% (annualized) for first half of fiscal 2025 as compared to 1.1% for fiscal 2024.

       

       PAT of the group stood at Rs 670 crore for the same fiscal 2024 as compared to Rs 710 crores for fiscal 2023, with RoMA of 1.4% and 2% respectively.
 

      The earnings profile of the group is supported by a large proportion of high-yield businesses and competitive borrowing costs. Group's borrowings profile and costs should continue to benefi both directly and indirectly leveraging SMFG’s global presence. The ability of the group to improve profitability whilst maintaining credit costs remains a key monitorable.

Liquidity: Superior

Liquidity profile of the group remained superior owing to presence of unencumbered liquidity surplus of Rs. 5,679 crore in the form of cash and short-term investment balance as on November 30, 2024. This was further supported by unutilized bank lines amounting to Rs. 6,226 crore and inflows from advances. Against the same, the group had total instalment repayments amounting to Rs 10,020 crore till May 2025. The diversified lender base, low reliance on short term funding (commercial paper) and well-matched asset-liability profile to minimise tenor and refinancing risks provide adequate support.

Outlook: Stable

CRISIL Ratings believes SMICC group will remain strategically important to, and continue to receive support from, SMFG, and will sustain its growth momentum while maintaining its healthy financial risk profile.

Rating Sensitivity Factors

Downward Factors:

• If there is a significant diminution in the stake held by, or the support expected from, SMFG, or a change in SMFG’s ratings by S&P Global by 1 notch or higher
• Continued deterioration in asset quality of group’s loan book with weak earnings profile on a sustained basis.

About the Company

The company started its operation in December 2015; offering home loan and loan against property in the affordable segment to the salaried and self-employed professionals. SMHFC is a 100% owned subsidiary of SMICC.

 

Product offerings include secured products which comprise primarily of mortgages/loans against property, and commercial vehicle loans. It currently operates out of 179 distribution points as on 30th September 2024.

 

About the Group

SMICC was formed in December 2005 through the acquisition of Dove Finance (DF) by Asia Financial Holding Pte, Singapore (through its investment arm, Angelica Investment Pte Ltd). After the acquisition, the name was changed to First India Credit Company Ltd, which was then renamed to Fullerton India Credit Company Ltd deriving its name from the parent.

 

SMFG had acquired 74.9% stake in the company on November 30, 2021, and completed the acquisition of remaining 25.1% stake on March 6, 2024, thus making it a wholly owned subsidiary. Product offerings include secured products which comprise primarily of mortgages/loans against property, and commercial vehicle loans. The unsecured product offerings comprise personal loans and rural group loans. The company operates through 1006 distribution points.

Key Financial Indicators (SMHFC- Standalone):

As on / for the year ended		30-Sep-24	31-Mar-24	31-Mar-23	31-Mar-22
Total Assets (Reported)	Rs crore	9,526	8,682	6,240	4,523
Total income	Rs crore	595	1,009	686	504
Profit after tax	Rs crore	50	93	40	17
Gross NPA	%	2.6	2.6	3.7	6.2
Adjusted Gearing#	Times	7.9	7.9	6.9	5.9
Return on assets^	%	1.0	1.1	0.7	0.3

^based on total managed assets; annualised

#Direct Assignment is included in Borrowings for calculation of Adjusted Gearing

Ratios are CRISIL Ratings Adjusted

 

Key Financial Indicators (SMICC- Consolidated):

As on / for the year ended		31-Mar-24	31-Mar-23	31-Mar-22
Total Assets (Reported)	Rs crore	48,411	40,904	27,246
Total income	Rs crore	8,083	5,712	4,093
Profit after tax	Rs crore	670	710	74
Gross Stage 3	%	2.5	3.2	6.7
Adjusted Gearing#	Times	7.3	6.9	5.1
Return on assets^	%	1.4	2.0	0.3

^based on total managed assets

#Direct Assignment is included in Borrowings for calculation of Adjusted Gearing

Ratios are CRISIL Ratings Adjusted

Any other information: Not Applicable

Annexure - List of Entities Consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
SMFG India Credit Company Ltd.	Full	Parent
SMFG India Home Finance Company Ltd.	Full	Subsidiary