Rating Rationale
July 23, 2020 | Mumbai
Bansal Credits Limited
'CRISIL BBB-/Stable' assigned to NCD
 
Rating Action
Total Bank Loan Facilities Rated Rs.120 Crore
Long Term Rating CRISIL BBB-/Stable (Reaffirmed)
 
Rs.15 Crore Non Convertible Debentures CRISIL BBB-/Stable (Assigned)
Fixed Deposits FA-/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL BBB-/Stable' rating to the non-convertible debentures for Bansal Credits Limited (Bansal Credits). The ratings on bank loan facilities and fixed deposits has been reaffirmed at 'CRISIL BBB-/FA-/Stable'.
 
The ratings continue to reflect the extensive experience of the promoters in vehicle financing, a stable resource profile, and moderate earnings. These strengths are partially offset by average capitalisation, a small, though improving, scale of operations, and geographic concentration in revenue.
 
Bansal Credits' liquidity position has remained adequate on account of improved fund raising, moratorium on borrowings and negligible disbursements. The company's liquidity cover for meeting the debt repayments for next three months has improved to 2.4 times (assuming only 20% collections on monthly basis for next 3 months). CRISIL will nevertheless, continue to monitor ability of the company to raise sufficient funding and maintain liquidity buffer.
 
Apart from fund raising, the collections during June 2020 also saw steady upward traction in comparison to the previous two months. During June 2020, the collection efficiency stood at 33.3% (total collections as a proportion of monthly billings) as against 12% in May 2020. The borrowers, largely comprising auto rickshaw drivers, were impacted by the lockdown and hence reduction in passenger traffic. This led to huge hindrances and stalling of their movement during April and May 2020. Hence, many of them migrated to their hometown till some normalcy was back in the Delhi/National Capital Region (NCR) and nearby areas. During this period, the company educated most of its borrowers about the moratorium and importance of timely repayment to avoid debt ballooning. This is likely to help in maintaining collection inflows. Following the subsequent relaxation in the lockdown and reopening of businesses, a few auto drivers started operations in June 2020. This led to an increase in collections to around 33.3% (including overdue for earlier months) from 7% in April 2020 and around 12% in May 2020. While collection efficiency was better, the ability to significantly improve this in the coming months while maintaining liquidity cover at the present level will be monitored closely.
 
On the liabilities side, the Reserve Bank of India (RBI) announced regulatory measures under the Covid-19 - Regulatory Package, whereby lenders were permitted to grant moratorium on bank loans. The moratorium has been further extended till August 31, 2020. CRISIL understands that the company has received moratorium approval from most of its lenders and its debt obligation, scheduled to be honoured over July and August 2020, is covered under this relaxation. CRISIL also understand that the company has availed only principal moratorium and therefore, continues to pay interest.

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 good reputation in the region, and have been able to retain a loyal set of retail depositors (over 13,500 currently).
 
* Stable resource profile
Resources are raised from non-banking financial companies (NBFCs), banks, financial institutions, and through public deposits. Incremental resources of Rs 23.4 crore have been raised since April 2020 at an average interest cost of 9-10%, which is similar to peers in related rating categories. The average cost of borrowing stood at 11.5% for fiscal 2020 as against 11.8% for fiscal 2019. However the cost of borrowing is expected to decline slightly to around 11% in the current fiscal on account of low-cost working capital facilities availed from SBI and SIDBI.
 
The company is in discussion with financial institutions for raising special capital for meeting capital requirement during the lockdown period.
 
* Moderate earnings
Earnings have remained stable over the past several fiscals with return on assets (RoA) at around 2% in the five fiscals through 2020. The company charges yields of 20-22% to borrowers. Though the cost of borrowing was 11.5% for fiscal 2020, the cost of operations reduced to 4.2% of average funds deployed for fiscal 2020 and fiscal 2019 from around 6% levels earlier. This has been driven by reducing agent commissions extended for sourcing. Also, credit costs have remained stable at around 1% of the average funds deployed over the past several fiscals. These factors have helped to keep profitability stable in fiscals 2019 and 2020.
 
Weaknesses:
* Average capitalisation
The Tier 1 capital adequacy ratio (CAR) was around 19% as on March 31, 2020. Capitalisation is supported by internal cash accrual and steady infusions by promoters for growth. The gearing was 4.5 times as on March 31, 2020 (4.6 times as on March 31, 2019). Capitalisation remains adequate for the current scale of operations, but considering growth plans, additional capital will be required for maintaining the Tier 1 CAR at around 20%.
 
* Small, though improving, scale of operations
Despite operating in the asset-financing business for the past three decades, growth and scale of operations have remained low compared with those of 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. Recently, the company has begun expanding into smaller cities outside this region to explore business opportunities available there. It thus remains exposed to local economic cycles in the region.
Liquidity Adequate

Liquidity is adequate for meeting repayment obligation over the next three months. Liquidity 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. Additionally, a term loan of Rs 12 crore was sanctioned by SBI. Further, the company is the process of tapping funds of Rs 15 crore under the TLTRO scheme.
 
Liquidity cover for meeting debt repayment for the next three months (July to September 2020)  has improved to 2.4 times (this includes assumption of only 20% monthly collections for this period. The company has received a moratorium from most of its lenders till August 2020. Also, collections during June 2020 increased steadily in comparison with the previous two months. During June 2020, the collection efficiency stood at 33.3% as against 12% in May 2020. Nevertheless, CRISIL will continue to monitor the liquidity position closely in light of the challenges faced due to the lockdown.

Outlook: Stable

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

Rating Sensitivity factors
Upward factors
* Increase in the scale of operations while maintaining the gearing at below 4 times
* Gross non-performing assets (GNPAs) remaining at current levels.
 
Downward factors
* No material improvement in collection efficiency in coming 2-3 months
* An increase in GNPA to more than 5%
* Reduction in return on managed assets to 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 with financing of 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 2020^ 2019 2018
Total assets Rs crore 207 196 161
Total income Rs crore 34.7 31.8 22.8
Profit after tax Rs crore 4.1 4.1 2.7
Gross NPA % 0.7 1.1 1.5
Adjusted gearing Times 4.5 4.6 4.1
RoA % 2.0 2.3 1.9
^As per provisional financials

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon
rate (%)		 Maturity
date		 Issue size
(Rs crore)		 Complexity
level		 Rating assigned 
and outlook
NA Non-Convertible debentures^ NA NA NA 15 Simple CRISIL BBB-/Stable
NA Term Loan 12-Feb-19 NA 31-May-22 10 NA CRISIL BBB-/Stable
NA Term Loan 04-Feb-20 NA 31-May-23 5 NA CRISIL BBB-/Stable
NA Term Loan 07-Jun-18 NA 05-Aug-21 16 NA CRISIL BBB-/Stable
NA Cash Credit NA NA NA 14 NA CRISIL BBB-/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 75 NA CRISIL BBB-/Stable
NA Fixed Deposit NA NA NA Programme NA FA-/Stable
^Yet to be issued
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fixed Deposits  FD  0.00  FA-/Stable  06-05-20  FA-/Stable  23-01-19  FA-/Stable  28-09-18  FA-/Stable  26-09-17  FA-/Stable  FA-/Stable 
        19-02-20  FA-/Stable               
        31-01-20  FA-/Stable               
Non Convertible Debentures  LT  15.00
23-07-20  		CRISIL BBB-/Stable    --    --    --    --  -- 
Fund-based Bank Facilities  LT/ST  120.00  CRISIL BBB-/Stable  06-05-20  CRISIL BBB-/Stable  23-01-19  CRISIL BBB-/Positive  28-09-18  CRISIL BBB-/Positive  26-09-17  CRISIL BBB-/Stable  CRISIL BBB-/Stable 
        19-02-20  CRISIL BBB-/Positive               
        31-01-20  CRISIL BBB-/Positive               
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 14 CRISIL BBB-/Stable Cash Credit 14 CRISIL BBB-/Stable
Proposed Long Term Bank Loan Facility 75 CRISIL BBB-/Stable Proposed Long Term Bank Loan Facility 75 CRISIL BBB-/Stable
Term Loan 31 CRISIL BBB-/Stable Term Loan 31 CRISIL BBB-/Stable
Total 120 -- Total 120 --
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Finance Companies

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