Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank loan facilities, fixed deposit and non-convertible debentures (NCDs) of Bansal Credits Ltd (Bansal Credits) at ‘CRISIL BBB-/FA-/Stable’.

 

The ratings continue to reflect the extensive experience of the promoters in vehicle financing, stable resource profile, and moderate earnings. These strengths are partially offset by average capitalisation, a small, though improving, scale of operations, and geographical concentration in revenue.

 

Given the current economic environment, collection efficiencies of the company have been impacted, dropping substantially to 7% in April 2020, however, it subsequently improved after moratorium to above 100% during September 2020 to March 2021 (except for January 2021, when collections were 88%). Nevertheless, with the onset of the second wave of the pandemic, collections for April and May 2021 declined to 68% and 44%, respectively. Collections improved from June 2021 to around 80% with easing of lockdown in Delhi.

 

The asset quality metrics have deteriorated with gross non-performing assets (GNPA) increasing to 2.1% as on March 31, 2021, from 0.7% as on March 31, 2020. Asset under management (AUM) degrew by around 3% on-year to Rs 172 crore whereas disbursement declined by 15% to Rs 126 crore. Deterioration in asset quality is partially attributed to this decline in the overall AUM due to negative growth in fiscal 2021. Asset quality, therefore, remains vulnerable to pressure, which is visible in the high restructuring in the portfolio of Rs 38 crore or 22% of AUM as on March 31, 2021. While this restructured portfolio is performing, ability to improve asset quality metrics in the near term remains a key rating sensitivity factor. Any further increase in restructured portfolio or deterioration in asset quality will remain a key rating sensitivity factor.

 

Elevated asset quality metrics also affected the earnings profile of the company. During fiscal 2021, return on assets (RoA) declined to 1.6% from 2.7% in the previous fiscal due to provisioning of Rs 4.5 crore in fiscal 2021, which increased from Rs 2.3 crore in fiscal 2020. With the second wave of the pandemic, credit costs are expected to remain elevated during the first quarter of fiscal 2022. Nevertheless, the company has a long track record of operating in Delhi, the National Capital Region (NCR) and nearby regions and has shown its ability to manage credit costs in the past. While the hit due to Covid-19 has been unprecedented, ability to control credit costs and turn around earnings profile will be key monitorable.

 

Capital position is adequate, with networth of Rs 39.0 crore and adjusted gearing of 3.9 times as on March 31, 2021, against Rs 36.0 crore and 4.5 times, respectively, as on March 31, 2020 Liquidity was Rs 7 crore (cash and equivalents). Also, the company has unutilised bank limit of Rs 5.08 crore and overdraft facility (against fixed deposit) of Rs 2.44 crore. Liquidity cover for meeting debt obligation (on scheduled payable basis) for the next two months stood at 1.6 times (assuming 50% collections on a monthly basis for the next two months). Bansal Credits is among the non-banking financial companies (NBFCs) that have a deposit-taking licence. The company also has a demonstrated track record of raising funds through deposits and has maintained high renewal rate. Nevertheless, CRISIL Ratings will continue to monitor ability to raise sufficient funding and maintain liquidity buffer.

Analytical Approach

CRISIL Ratings has evaluated the standalone business and financial risk profiles of Bansal Credits

Key Rating Drivers & Detailed Description

Strengths:

* Extensive experience of the promoters

The promoters have been profitably operating the vehicle-financing business in North India for the past three decades across several business cycles. They enjoy a strong reputation in the region and have been able to retain a loyal set of retail depositors (over 13,660 currently).

 

* Stable resource profile

Resources are raised from NBFCs, banks, financial institutions, and through public deposits. The company raised Rs 37 crore in fiscal 2021 and another Rs 5 crore till June 2021 through term loans, special liquidity support scheme and NCDs from banks, NBFCs and development institutions. Incremental resources of Rs 37 crore have been raised since April 2021 at an average interest cost of 9-10%, which is similar to peers in related rating categories. The average cost of borrowing stood at 10-11% for fiscal 2021 against 11.5% for fiscal 2020. Cost of borrowing declined on account of low-cost working capital facilities availed of from the State Bank of India (SBI) and Small Industries Development Bank of India.

 

* Moderate earnings

Earnings have remained stable over the past several fiscals with RoA of around 2% in the five fiscals through 2020. However, due to higher provisioning, RoA declined to 1.6% in fiscal 2021. With the advent of the second wave, credit costs will remain elevated in fiscal 2022 and will impact earnings profile. The company’s ability to control credit costs and turn around on the earnings profile will be key monitorable.

 

Weakness:

* Small, though improving, scale of operations

Despite being in the asset-financing business for the past three decades, growth and scale of operations have remained low compared with other asset-financing NBFCs. Due to its conservative approach and stiff competition from banks and other asset-financing NBFCs, the company has not been able to scale up its loan book substantially. Despite a significant increase in loan assets in fiscal 2018, it is expected to remain a relatively small player in the retail NBFC space over the medium term.

 

* Geographical concentration in revenue

Delhi accounts for 75% of the overall revenue, with operations largely restricted to Delhi/NCR. Though the company has begun expanding into smaller cities outside this region, it remains exposed to local economic cycles.

Liquidity: Adequate

Liquidity is adequate to meet debt obligation over the next three months. It has benefitted from the incremental fund raising under various Covid-19 special schemes announced by the government. Over Rs 10 crore was raised under the Covid-19 special liquidity scheme in July 2020 at an interest rate of 6.85%. Additionally, a term loan of Rs 12 crore was sanctioned by SBI in June 2020. The company has also raised fund through NCDs of Rs 15 crore in July 2020. It is also tapping funds of Rs 25 crore under a special scheme.

 

As on March 31, 2021, liquidity was Rs 7 crore (cash and equivalents). Unutilised bank limit stood at Rs 5.08 crore and overdraft facility (against fixed deposit) was Rs 2.44 crore. Liquidity cover for meeting debt repayment for the next two months stood at 1.6 times. The company had received a moratorium from most of its lenders till August 2020. After that, collections increased steadily and supported overall debt repayment. During April-June 2021, average collection efficiency stood at 64%, against 24% in the corresponding quarter of the previous fiscal. Nevertheless, CRISIL Ratings will continue to monitor liquidity in the light of the challenges faced due to the lockdown.

Outlook: Stable

Bansal Credits will continue to benefit from the extensive industry experience of its promoters and maintain moderate earnings and resource profiles over the medium term.

Rating Sensitivity Factors

Upward factors

• Increase in networth above Rs 60 crore while maintaining gearing below 5 times
• Improvement in profitability with RoA over 2% on steady state basis
• Scale of operations of the company improves from the current levels

 

Downward factors

• GNPA increasing above 5%
• RoA reducing below 1%

About the Company

Bansal Credit is a deposit-taking, asset-financing NBFC promoted by Mr Manohar Lal Aggarwal and his two sons in 1988, with the objective of financing commercial vehicles and cars across Delhi. Initially incorporated as a private limited company, it was reconstituted as a closely held public limited company in March 1997.

 

The company started operations by financing private cars and light commercial vehicles. With the entry of multi-national companies and foreign banks into the car financing segment, it shifted focus to financing heavy commercial vehicles and second-hand light and medium-sized commercial vehicles in New Delhi and smaller towns across the NCR. In 2005, it started financing three-wheelers in Delhi, Haryana, Punjab, Rajasthan, Uttar Pradesh and Uttarakhand. In Delhi, it sources business through dealers, a chain of brokers, and vehicle sales and purchase agents. In the other states, it sources the three-wheeler financing business through a network of 13 branches and 31 business associates, who also act as the primary guarantors for the loans.

Key Financial Indicators

Particulars	Unit	2021^	2020	2019	2018
Total assets	Rs crore	202	207	196	161
Total income	Rs crore	34.7	34.7	31.8	22.8
Profit after tax	Rs crore	2.5	4.1	4.1	2.7
Gross NPA	%	2.1	0.7	1.1	1.5
Adjusted gearing	Times	3.9	4.5	4.6	4.1
RoA	%	1.6	2.7	2.3	1.9

^As per provisional financials

Any other information: Not applicable