| The Railway Employees Co-Operative Credit Society Limited | ||||
| Rating reaffirmed at 'CRISIL A-/Stable' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A-/Stable’ rating on the long-term bank loan facilities of The Railway Employees Co-operative Credit Society Ltd (RECCS).
The rating continues to reflect the stable and sustainable credit risk profile of Railway Society with member being employees of Indian Railways. The rating also factors in a healthy asset quality and adequate capitalisation. The asset quality in such societies typically remains healthy as recovery of loans is made at the time of disbursement of the salary. The absolute corpus was adequate and gearing low as on June 30, 2021 at Rs 449 crore and 3.5 times respectively (Rs 448 crore and 3.6 times respectively as on March 31, 2021).
For RECCS, there has been no impact of the lockdown during the second wave of the pandemic as well, as far as collections are concerned. The loan equated monthly instalment (EMI) collections are done directly from the salaries of the members who are Indian Railway employees. In terms of credit growth, society’s portfolio growth moderated to 3% in fiscal 2021 from around average annual growth rate of 19% during fiscal 2016 to 2020. The growth was affected due to increased competition from banks and other finance companies due to their ability offer loans at better rates. The growth was also affected due to decline in number of memberships; during fiscal 2021 the total memberships declined to 61,195 from 63,359 in fiscal 2020. In addition, the society also remained cautious towards adding new memberships and incremental credit growth due to Covid scenario. CRISIL Ratings understand that the overall memberships are expected to remain flat owing higher number of retirements lined up in fiscal 2022 and also due to the prevailing pandemic conditions.
In terms of liquidity, the society, unlike deposit-taking non-banking financial companies (NBFCs), does not maintain statutory liquidity. In addition, it has no systemic support to fall back on in times of liquidity stress. It also does not come under the purview of a strong regulator like the RBI. This exposes the society to risks emerging from heightened regulatory oversight that may be imposed in future. However, comfort can be driven from the strong collections of around Rs 69 crore (average between April 2021 to June 2021) even during the lockdowns due to the second wave of the pandemic. The society benefits from collections that are directly deducted from the salary of borrowers working for Indian Railways. Apart from steady collections, the society had liquidity of Rs 557.5 crore as on August 31, 2021, cash/bank balance was Rs 288.5 crore and unutilised bank lines were Rs 269 crore against which the society had outflow of Rs 226 crore over the next 3 months through November 2021. This represents liquidity cover of 1.3 times. |
Key Rating Drivers & Detailed Description Strengths: * Steady improvement in scale of operations and a stable credit risk profile: Stable and sustainable credit risk profile, with members consisting entirely of employees of Indian Railways: The strong credit risk profile of the Society’s members’ employer is a critical factor enhancing the stability and sustainability of employee cooperative societies (ECS) such as RECCS. A stable employer makes uninterrupted and timely payment of salaries to employees, which, in turn, ensures timely recovery of dues. In the case of RECCS, the employer is Indian Railways, a department of the Central government. The society is thus likely to maintain its stable credit risk profile, which will help to sustain growth in its scale of operations over the long term. Although the growth moderated from 24% y-o-y in fiscal 2018 to 3% y-o-y in fiscal 2021, the medium term growth prospects remain intact for the society. The portfolio has almost doubled over the last 5 years to Rs 2162 crore as onJune 30, 2021 from Rs 1,103crore as on March 31, 2016.
* Healthy asset quality: The healthy asset quality is also supported by low delinquencies. This is common in ECSs as the borrower base is well known—employees of the society and salaried borrowers. Recovery of loans is made at the time of disbursement of the salary. For RECCS, the portfolio at risk greater than 30+ dpd has also been low i.e. in the range of 0.3-0.6% for the past four years. However, the ultimate losses have been close to nil. Though delinquencies are expected to remain at the current level over the medium term, supported by stringent underwriting norms and recovery mechanisms.
* Adequate capitalisation for the current scale of operations: The society collects compulsory monthly thrift deposits from its members, who have to contribute 10% of the general loan amount towards share capital; this ensures minimum capital adequacy of at least 10%. Indian Railways deducts loan dues and thrift deposits from the salary of the members, and remits this to the society. . The absolute corpus was adequate and gearing low as on June 30, 2021 at Rs 449 crore and 3.5 times respectively (Rs 448 crore and 3.6 times respectively as on March 31, 2021). The net worth has been growing steadily with increase in members and steady internal cash accrual. The society is likely to remain adequately capitalised over the medium term.
Weakness: * Limited flexibility in liquidity: The society, unlike deposit-taking NBFCs, does not maintain statutory liquidity. In addition, it has no systemic support in case of liquidity stress. Therefore, a surge in withdrawal of deposits could lead to severe pressure on liquidity. However, in order to meet such exigencies, RECCS proposes to maintain funds of around Rs 60 crore at any point in time in the form an undrawn bank line. There was an unutilised bank lines of around Rs 210 crore as of September 30, 2021.
* Risks emerging from heightened regulatory oversight: Currently, ECSs are not under the ambit of RBI regulations, and are, therefore, not subject to RBI’s stringent prudential norms that are applicable to other public deposit-raising entities such as banks and NBFCs.However, ECSs are likely to come under increased regulatory oversight over medium term. |
Liquidity: Adequate In terms of liquidity, the society, unlike deposit-taking non-banking financial companies (NBFCs), does not maintain statutory liquidity. In addition, it has no systemic support to fall back on in times of liquidity stress. However, comfort can be driven from the strong collections of around Rs 69 crore (average between April 2021 to June 2021) even during the lockdowns due to the second wave of the pandemic. The society benefits from collections that are directly deducted from the salary of borrowers working for Indian Railways. Apart from steady collections, the society had liquidity of Rs 557.5 crore as on August 31, 2021, cash/bank balance was Rs 288.5 crore and unutilised bank lines were Rs 269 crore against which the society had outflow of Rs 226 crore over the next 3 months through November 2021. This represents liquidity cover of 1.3 times. |
Outlook Stable CRISIL Ratings believes RECCS will maintain its stable credit risk profile, its healthy asset quality and adequate capitalisation, over the medium term. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Society RECCS, established in 1907, caters to employees and officers of the Southern, South-Central, South-Western, and Central Railways, and of the Integral Coach Factory, Chennai. The society is governed by the Multi-State Co-operative Societies Act, 2002. It has 28 branches, and deposits of Rs 651 crore, advances of Rs 2,162 crore as on June 30, 2021, and 60,275 members, as on June 30, 2021.
Net surplus was Rs 126.5 crore on total income of Rs 315.6 crore in fiscal 2021 against net surplus of Rs 111 crore on total income of Rs 297.7 crore in the previous fiscal. |
Key Financial Indicators
*annualised basis |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 13-Oct-2021 in line with the lender-wise facility details as on 3-Aug-2021 received from the rated entity
Criteria Details
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