Tata Capital Financial Services Limited 'CRISIL AAA/Stable' assigned to Non Convertible Debentures
Rating Action
& Includes Non-Convertible Debentures and 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 AAA/Stable’ rating on Non Convertible Debentures of Rs 1500 crore of Tata Capital Financial Services Limited (TCFSL). CRISIL Ratings has also reaffirmed its ratings on the company's other debt instruments at 'CRISIL AAA/CRISIL PPMLD AAA r/CRISIL AA+/Stable/CRISIL A1+’.
Consequent to redemption, CRISIL Ratings has withdrawn its rating on Retail Bonds of Rs 848 crore, Perpetual Bonds of Rs 6.45 Crore (See Annexure 'Details of rating withdrawn' for details), Retail Bonds of Rs 1,468.06 crore, Non Convertible Debentures of Rs 10196.70 crore and Market Linked Debentures of Rs 757.10 Crore in line with its withdrawal policy. CRISIL Ratings has received independent confirmation that these instruments are fully redeemed. CRISIL Ratings has also withdrawn its rating on Rs.8,000 crore Commercial Paper Programme (IPO Financing) at the company's request and based on third party confirmation for nil outstanding. This is in line with CRISIL Ratings’ withdrawal policy.
For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of Tata Capital Limited and its subsidiaries TCFSL, Tata Capital Housing Finance Limited (TCHFL), Tata Cleantech Capital Limited (TCCL), Tata Securities Ltd and Tata Capital Pte Ltd, Singapore), all together referred to as Tata Capital Limited (TCL) group.
Ratings for TCL group is driven by increased strategic importance of the financial services business to Tata Sons Private Limited (Tata Sons; rated 'CRISIL AAA/Stable/CRISIL A1+'). This is in line with the Tata group's focus on domestic consumption as a key theme in their growth philosophy. The TCL group, as the principal vehicle for non-captive lending, plays a key role through which this strategy will be implemented.
The rating also factors in the strong support by the parent Tata Sons demonstrated by articulation of its intention to (i) to maintain majority shareholding in the TCL group, (ii) to assist TCL group in organizing for any shortfall in maintaining capital adequacy as per applicable regulations and (iii) to conduct the business of TCL group in a manner that would enable TCL group to perform its obligations to all lenders and debt holders in full and timely manner.
The prefix 'PP-MLD' indicates that the principal amount of the debentures is protected, while returns remain market-linked. The suffix 'r' shows that the returns on the debentures have significant risks other than credit risk. Also, payments to investors are not fixed and are linked to external variables such as government yield, commodity prices, equity indices, foreign exchange rates, or equity valuation of the company. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of TCL and its subsidiaries TCFSL, TCHFL, TCCL, Tata Securities Ltd and Tata Capital Pte Ltd, Singapore). This is because they have significant operational and management linkages and operate under the common Tata Capital brand. The ratings also factor in strong support from TCL’s parent, Tata Sons given the strategic importance of TCL and its subsidiaries as the principal vehicle of non-captive lending in the group and the Tata Sons’ strong articulation of support.
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Key Rating Drivers & Detailed Description Strengths:
CRISIL's ratings on debt instruments of TCL group continue to be based on the expectation of strong support that the group is expected to receive from the ultimate parent, Tata Sons. This is due to Tata Sons’ majority ownership in the TCL group, coupled with the increasing importance of the financial services business to the Tata group.
Tata Sons directly owns 94.55% of TCL's equity shares and most of the remaining stake is held by the other Tata group companies and trusts. TCL in turn holds 100% stake in its two main subsidiaries- TCFSL and TCHFL. Tata Sons also has personnel from its senior management on TCL's board. Tata Sons has infused of Rs 6,300 crore in Tata Capital since inception of which Rs 1,000 crore was infused in fiscal 2020 and Rs 2,500 crore was in fiscal 2019 indicating the intent of the group to step up its focus on the lending business.
TCL group, as the Tata group’s non-captive lending vehicle, is the primary financial services arm, and remains critical to the group, given the growth opportunities in this sector over the medium to long term. TCL group is also strategically important to the Tata group because it caters to the funding requirements of various entities associated with the group, such as its suppliers, vendors, and dealers. The shared brand and infrastructural synergies with various Tata group companies strengthen the integration of the TCL group with the overall Tata group. Business synergies are set to increase further as TCL taps into the Tata group ecosystem as part of its growth strategy. CRISIL Ratings believes that Tata Sons will continue to have majority ownership in, and management control of TCL and its subsidiaries, over the medium term.
TCL group has comfortable capitalization, with consolidated networth (including Compulsorily Convertible Preference Shares) of Rs 12,823 crore as on March 31, 2022 as compared to consolidated networth of Rs 11,132 crore as on March 31, 2021. The group companies TCFSL, TCHFL and TCCL remain adequately capitalised and the TCL Group has been supported by regular infusion from its parent to support growth.
As on March 31, 2022, the networth of TCFSL was Rs 7,763 crore and gearing was 6.3 times (Rs 6,735 crore and 5.7 times as on March 31, 2021). The capital adequacy of TCFSL was comfortable with tier-1 capital level of 11.8% and total capital ratio of 17.2% as on March 31, 2022.
For TCHFL, as on March 31, 2022, the networth was Rs 3,567 crore and gearing was 7.6 times (Rs 3,079 crore and gearing was 7.7 times as on March 31, 2021). The capital adequacy of TCHFL was comfortable with tier-1 capital level of 14.1% and total capital ratio of 17.8% as on March 31, 2022.
For TCCL, the networth was Rs 1,677 crore and the gearing was 4.0 times as on March 31, 2022 (Rs 1,162 crore and the gearing was 4.6 times as on March 31, 2021). The tier-1 capital and total capital ratio of TCCL was 17.4% and 23.2% as on March 31, 2022.
TCL’s consolidated gearing stood at 6.6 times as on March 31, 2022 as compared to consoliated gearing at 6.1 times as on March 31, 2021. CRISIL Ratings believes that TCL group is adequately capitalized to absorb asset-side risks. CRISIL Ratings also believes that despite its significant growth plans, TCL group's capitalization is expected to remain comfortable, given Tata Sons' commitment to support growth in the financial services business.
TCL group also has access to funding from a diverse base of lenders; the funding profile is balanced with a mix of non-convertible debentures, bank borrowings, and short-term debt. As on March 31, 2022, overall market borrowings stood at about 57% of total borrowings. TCL and its subsidiaries have the ability to mobilize debt at competitive costs, given their association with the Tata group. In fiscal 2022, the overall quantum of resources raised in fiscal 2022 were Rs 107,781 crore (includes CP raised for IPO financing).
Weaknesses:
On a consolidated basis, TCL group's gross non-performing assets (NPAs) and net NPAs improved to 1.9% and 0.6% respectively as on March 31, 2022 from 2.5% and 0.9 respectively as on March 31, 2020.
In case of TCFSL, the gross stage-3 improved to 2.2% as on March 31, 2022 from 3.0% as on March 31, 2021. The company's provision coverage ratio for stage-3 assets was 79% as on March 31, 2022 thereby translating into net NPA to 0.5%. Additionally, restructuring in TCFSL was 3.0% (Rs 1,674 crore) of the portfolio as on March 31, 2022.
TCHFL's reported stage-3 improved to 1.6% as on March 31, 2022 from 2.1% as on March 31, 2021. The provision coverage ratio stood at 55% as on March 31, 2022 leading to net NPA of 0.7%. Additionally, restructuring in TCHFL was 5.1% (Rs 1,482 crore) of the portfolio as on March 31, 2022.
TCCL had stage-3 of 0.9% and net NPA of 0.5% respectively as on March 31, 2022 against 1.0% and 0.6% respectively as on March 31, 2021. The provisioning coverage ratio of TCCL was 36.4% as on March 31, 2022.
All the Tata Capital group companies have put necessary systems in place for recognition of asset quality metrics as per the new norms of November 2021 and expected to continue to report as per the same despite relaxation given by RBI in its February 15, 2022 circular. The collections of the entities in the group were marginally impacted in the month of May and improved back to the normal level since June 2021. However, the impact on the asset quality, especially in riskier segments such as unsecured lending and the wholesale lending remains a key monitorable.
TCL group's profitability has been subdued in the past, although on an improving trend. TCL’s consolidated PAT grew by 45% to Rs 1,801 crore in fiscal 2022 from Rs 1,245 crore reported for fiscal 2021, driven by lower credit costs as well as lower cost of funding. Total provisioning expense for fiscal 2022 amounted to Rs 1,081 crore as compared to Rs 1,398 crore in fiscal 2021, with a healthy provision coverage ratio of 71% (65% as on March 31, 2021).
TCFSL reported an increase in PAT to Rs 817 crore on a total income (net of interest expense) of Rs 3,454 crore in fiscal 2022 from PAT of Rs 677 crore on a total income (net of interest expense) of Rs 3,096 crore in fiscal 2021. The return on assets stood stable at 1.5% in fiscal 2022 as compared to 1.4% in fiscal 2021. The provisioning expense for fiscal 2022 amounted to Rs 890 crore as compared to Rs 1,013 crore for fiscal 2021.
TCHFL reported an increase in PAT to Rs 569 crore on a total income (net of interest expense) of Rs 1,325 crore in fiscal 2022 from PAT of Rs 355 crore on a total income (net of interest expense) of Rs 1,130 crore in fiscal 2021. The return on assets improved to 1.9% in fiscal 2022 from 1.2% in fiscal 2021. The provisioning expense for fiscal 2022 amounted to Rs 163 crore as compared to Rs 357 crore for fiscal 2021.
TCCL reported an increase in PAT to Rs 204 crore on a total income (net of interest expense) of Rs 352 crore in fiscal 2022 from PAT of Rs 168 crore on a total income (net of interest expense) of Rs 290 crore in fiscal 2021. The return on assets stood healthy at 2.7% in fiscal 2022 (2.6% in fiscal 2021).
CRISIL Ratings estimates that given a healthy provision coverage ratio, the incremental stress in the current loan portfolio from Covid-19 would be limited. However, the performance of the restructured portfolio of the group and its impact on profitability and credit cost remains monitorable. |
Liquidity: Superior TCFSL’s Asset Liability Management (ALM) as on June 30, 2022 shows no cumulative negative mismatches upto 1 year maturity bucket (the inflows include existing committed bank lines). In terms of liquidity, as on August 31, 2022, TCL Group had total cash equivalents and unutilized working capital lines of Rs 16,624 crore. The external debt repayment cover of TCL Group for three months was 2.2 times and TCL Group had external debt repayments of Rs 7,682 crore over the next three months ending November 30, 2022. |
Outlook: Stable CRISIL Ratings believes that TCL group will remain highly strategically important to Tata Sons, and continue to benefit from the strong parent support over the medium term. The outlook may be revised to ‘Negative’ in case of a decline in Tata Sons’ credit quality or in CRISIL Ratings’ view, a diminution in expected support to TCL group. The outlook may also be revised to ‘Negative’ in case of significant pressure on the TCL group’s asset quality, impacting the group’s earnings. |
Rating Sensitivity factors Downward factors
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About the Company TCFSL is a wholly subsidiary of TCL, registered with the Reserve Bank of India as a Systemically Important Non-Deposit Accepting Non-Banking Financial Company (NBFC) and offers fund and fee-based financial services to its customers. A trusted and customer- centric, one-stop financial services provider, TCFSL caters to the diverse needs of retail, corporate and institutional customers, across various areas of business namely the Commercial Finance, Wealth Management, Consumer Loans. It has a diversified product portfolio, with almost equal presence across both retail and wholesale finance segments. As on March 31, 2022, TCFSL had networth of Rs 7,763 crore.
TCL is the holding company for the financial services businesses of the Tata Capital group and is registered with the Reserve Bank of India as a systemically important, non-deposit-taking, Core Investment Company. Tata Capital has a diversified product portfolio with a presence in both the wholesale and retail finance segments. It had sizeable AUM of Rs 94,349 crore as on March 31, 2022 (Rs 77,219 crore as on March 31, 2021). The fund-based products and services are primarily offered by TCFSL (both wholesale and retail finance segments), TCHFL (mortgage finance), and TCCL (infrastructure finance). The fee-based services distribution of mutual funds and insurance products, stock broking, and investment banking are offered through the wholly owned subsidiary, Tata Securities Ltd. |
Key Financial Indicators -Tata Capital Limited (Consolidated)
Key Financial Indicators – Tata Capital Financial Services Limited (Standalone)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
@rated but unutilized *Retail bonds -Includes Non-Convertible Debentures and Subordinated Debt
Annexure - Details of Withdrawal
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Annexure – List of entities consolidated
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Criteria Details
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