Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable’ rating on the long-term bank facilities of De Lage Landen Financial Services India Pvt Ltd (DLL India), which continues to be centrally based on S&P's counterparty ratings of 'A+/Negative/A-1' on Cooperatieve Rabobank UA, CRUA Nederland (Rabobank Nederland). CRISIL Ratings has also withdrawn its rating on the Rs 505 crore bank facilities of DLL India on receipt of request from the client. The withdrawal is in line with CRISIL’s Ratings policy on withdrawal of ratings.

 

The rating reflects Rabobank Nederland’s prioritisation of long-term customer franchise growth over short-term returns, defined medium-term strategy, market leading presence in the Netherlands, and strong performance of the domestic residential mortgage portfolio. These strengths are partially offset by elevated loan impairments expected in the next two years because of the Covid-19 pandemic, high reliance on wholesale funding and susceptibility to regulatory challenges.

 

The rating on DLL India reflects expectation of strong support from its ultimate parent, Rabobank Nederland. The strength is partially offset by the small scale of operations, and limited track record and diversification.

 

In the aftermath of Covid-19 breakout, the nation-wide lockdown imposed impacted operational activity across the country. After a muted first quarter, eventual uplifting of restrictions on public activity led a slow pick up in disbursements with the onset of the second quarter. 

 

The company had offered moratorium to its borrowers, and hence, collections were below expectation till August 31, 2020. While collections have inched up since then, sustainability of the same needs to be monitored given localised restrictions being re-imposed in a few states due to the building up of the second wave of the pandemic. This could also exert further pressure on asset quality metrics.

 

Gross stage 3 remained elevated at 17.9% as on December 31, 2020 (11.9% as on March 31, 2020). This is due to higher risk profiles of customers and lack of banking habits among most of them. These factors have led to a higher cost business for DLL India and impacted its earnings profile. Hence along with the healthcare portfolio, the company has now decided to scale down the tractor financing book as well.

 

Further, the company has approved one-time restructuring for accounts worth Rs 23.38 crore (1.48% of assets under management –AUM) as on March 31, 2021. Performance of the standard portfolio and the restructured book will be a monitorable.

 

Note: Fiscal 2020 onwards, numbers are as per IND AS reporting; fiscal 2019 numbers are as per IGAAP reporting

Analytical Approach

The rating on the Indian affiliates of global financial institutions (GFIs) by CRISIL Ratings centrally factors in the expectation of support from their ultimate parents. The rating framework for such affiliates considers the following factors: CRISIL Ratings’ assessment of the global operating environment and its impact on the credit risk profiles of GFIs; S&P' ratings on the GFIs; CRISIL Ratings’ translation of S&P’s ratings on the parent into its rating scale; and the standalone credit quality of the respective Indian operations

Key Rating Drivers & Detailed Description

Strengths:

• Strategic importance to, and strong expectation of support from, Rabobank Nederland: DLL India is wholly-owned by Rabobank Nederland through DLL International BV, which is the parent company for all DLL group companies worldwide. DLL India is held by De Lage Landen Asia Participations BV while De Lage Landen Corporate Finance BV holds one share. These two entities are in turn held by DLL International BV, which, in turn, is held by Rabobank Nederland.

 

DLL International BV and its subsidiaries across the globe conduct Rabobank Nederland’s leasing business, which contributes ~12% to the parent’s revenue. Apart from its own branch, Rabobank Nederland uses DLL India as a vehicle for its leasing and lending business in India. DLL India derives strategic and operational expertise from DLL International BV, which has been in the leasing business since 1969. The company's business and risk management policies and systems are based on the policies and systems that the group adopts globally. There is one common director on the boards of DLL India and other DLL entities across Asia. Further, in press releases, Rabobank Nederland has reaffirmed its strong commitment to supporting DLL International BV and its subsidiaries, which carry out the global vendor financing business. Rabobank, through DLL International BV, also provides capital support, and has infused equity of Rs 585.5 crore into DLL India so far.

 

DLL International BV and Rabobank Nederland share resources.  Most of the portfolio of DLL International BV is funded by the shareholder Rabobank. In locations where it is more efficient to obtain funding locally, DLL engages in funding partnerships with high profile local banks. However Rabobank will remain the main source of funding in the coming years. Pursuant to Section 403 of Book 2 of the Dutch Civil Code, Cooperative Rabobank U.A. has assumed liability for the debts arising from the legal transactions of DLL International BV.

 

Weakness:

• Small scale of operations and limited track record and diversification: Having started operations in May 2013, scale of operations is small with a loan book of Rs 1585.2 crore as on December 31, 2020 (increased by ~5.8% from Rs 1498.5 crore a year earlier). Moreover, it disbursed Rs 349.9 crore from April to December 2020 as against Rs 504.5 crore in corresponding period of the previous fiscal. Diversification is also limited because DLL India, like other subsidiaries of DLL International BV, primarily undertakes the vendor financing business and is present primarily in the agriculture sector (tractor financing) and has portfolio in healthcare and construction.

 

However, DLL India has been scaling down its healthcare portfolio since the last couple of years. Further, tractor market has proven to be a difficult sector for DLL India due to small transaction sizes, higher risk profiles of the customers and most of the customers not having sufficient auto-debit penetration and banking habits. As a result, collections and asset quality of the segment has been average and hence DLL India has decided to stop new lending in the tractor sector effective December 31, 2020.

 

Gross Stage 3 were high at 17.9% (of advances) as on December 31, 2020 (11.9% as on March 31, 2020). Track record and growth in asset quality management is limited. DLL India is yet to turn profitable. While the management has good domain expertise and a strong track record in the financial services space, ability to manage portfolio performance and profitability is yet to be demonstrated.

Liquidity :Strong

Liquidity is comfortable with positive cumulative mismatch in all the buckets as per the asset liability mismatch statement as on December 31, 2020. The company has debt repayments of ~Rs 108 crore from March till April 2021. Against this, cash and liquid investments stood at ~Rs 178 crore as on January 31, 2021.  The company can also borrow from its parent by way of external commercial borrowings to ensure adequate liquidity at all times.

Outlook Stable

CRISIL Ratings’ believes Rabobank Nederland will continue to support DLL India. The outlook may be revised to 'Positive' if there is an enhanced articulation of support from Rabobank Nederland. The outlook may be revised to 'Negative' in case of a downward revision in S&P's rating on Rabobank Nederland, or a change in Rabobank Nederland’s stance on support extended to DLL India.

Rating Sensitivity factors

Upward factors:

• Continuous improvement in the asset quality and earnings profile (RoA >3%) and/or;
• Enhanced articulation of support from Rabobank Nederland.

 

Downward factors:

• Downward revision in S&P’s rating on Rabobank Nederland by more than 2 notches, or a change in Rabobank Nederland’s stance on support extended to DLL India.
• Significant and continuous deterioration in asset quality impacting overall earnings profile.

About DLL International BV

DLL India, a non-banking financial company (NBFC), was incorporated in September 2011. The company got its NBFC license in May 2013. It is wholly-owned by Rabobank Nederland through DLL International BV. DLL India is held by De Lage Landen Asia Participations BV (around 100%) and De Lage Landen Corporate Finance BV (one share), which is held by DLL International BV (parent company of all DLL companies worldwide).

 

DLL International BV began operations in 1969 and primarily undertakes vendor financing and leasing. Rabobank Nederland derived about 12% of its revenue in fiscal 2020 from the leasing business, carried out by DLL International BV worldwide.

 

Like DLL International BV, DLL India is mainly involved in vendor financing and had a loan book of Rs 1585.2 crore as on December 31, 2020. It is present in three segments: agriculture (77.4% of the book as on December 31, 2020), healthcare (21.3%) and construction (1.3%). DLL India has a credit office each in Mumbai and Delhi, and sales executives spread across the country for tractor financing activity. 

 

For fiscal 2020, DLL India reported a loss of Rs 39.2 crore on total income of Rs 211.6 crore, against Rs 49.01 crore and Rs 148.21 crore, respectively, in fiscal 2019.

 

For the nine months ended December 31, 2020, it further reported a loss of Rs 57.78 crore on total income of Rs 179.09 crore as against Rs 25.06 crore and Rs 153.95 crore, respectively, for the corresponding period of the previous fiscal.

Key Financial Indicators

As on / for the nine months ended December 31,		2020	2019
Total assets	Rs crore	1566	1657
Total income	Rs crore	179	154
Profit after tax	Rs crore	-58	-25
Gross NPA	%	17.87	8.0
Gearing	Times	4.1	3.5
Return on assets	%	-4.9	-2.1

 

Any other information:

The company is adequately capitalised, as indicated by networth of Rs 294 crore, and Tier I and overall capital adequacy ratio of 19.8% and 21.0%, respectively, as on December 31, 2020. The capital is expected to remain adequate, supported by regular equity infusion by the parent. The parent has infused Rs 585.5 crore till now and is likely to continue providing financial assistance to support DLL India’s growth plans. Gearing was 4.1 times as on December 31, 2020.

Annexure - Details of Instrument(s)

SIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs crore)	Complexity levels	Rating assigned with outlook
NA	Long-term bank facility	NA	NA	23-Oct-23	149.2	NA	CRISIL AA+/Stable
NA	Long-term bank facility	NA	NA	29-Aug-24	73.3	NA	CRISIL AA+/Stable
NA	Long-term bank facility	NA	NA	29-Feb-24	318.9	NA	CRISIL AA+/Stable
NA	Long-term bank facility	NA	NA	26-Dec-22	98.0	NA	CRISIL AA+/Stable
NA	Long-term bank facility	NA	NA	28-Feb-23	200.0	NA	CRISIL AA+/Stable
NA	Long-term bank facility	NA	NA	28-Feb-23	180.0	NA	CRISIL AA+/Stable
NA	Proposed Long-term bank facility	NA	NA	NA	85.6	NA	CRISIL AA+/Stable