Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the existing debt instruments and bank facilities of GIC Housing Finance Limited (GIC HF).

 

The ratings continue to reflect the strong support expected from the promoter-shareholder General Insurance Corporation of India Re (GIC Re); and the company’s adequate capitalisation. These strengths are partially offset by modest asset quality and a moderate scale of operations.

 

Lockdowns amid the Covid-19 pandemic led to disruption in economic activity and exerted pressure on the cash flow of borrowers. Consequently, collections dropped during lockdowns, both in the first and second waves of the pandemic but recovered gradually owing to subsequent easing of movement restrictions. The third wave of the pandemic has not disrupted the operations materially however, any change in the payment discipline of the borrowers may affect the delinquency levels and will remain a monitorable.

 

Under the Reserve Bank of India (RBI) Resolution Framework 1.0 and 2.0 for Covid-19-related stress, the company restructured around 0.7% of assets under management (AUM) as on December 31, 2021. Also, gross non-performing assets (GNPAs) inched up to 8.84% as on December 31, 2021, from 7.38% as on March 31, 2021, mainly on account of the pandemic. Including the impact from the clarification released by the RBI on November 12, 2021, GNPAs were 10.0% as on December 31, 2021. While the company is adequately capitalised, its ability to manage collections and asset quality in fiscal 2023 will be a key monitorable.

Analytical Approach

CRISIL Ratings assesses the standalone credit risk profile of GIC HF and continues to factor in the strong support from the parent, considering the strategic importance of the entity, largest shareholding, shared management, and shared brand.

Key Rating Drivers & Detailed Description

Strengths:

Expectation of strong support from the promoter and largest shareholder, GIC Re

GIC Re and its erstwhile subsidiaries — National Insurance Co Ltd, The New India Assurance Co Ltd, The Oriental Insurance Co Ltd, and United India Insurance Co Ltd — together hold 42.41% equity stake in GIC HF as on December 31, 2021. While GIC Re is the largest shareholder with 15.26% stake, all the promoter companies act in concert with GIC Re for decision-making. GIC HF also derives management support from GIC Re. Furthermore, the name sharing strengthens GIC Re's moral obligation to support the housing finance entity. Additionally, GIC Re has provided a written commitment ensuring that GIC HF will honour all its financial obligations in a timely manner.

 

Adequate capitalisation

The company had a sizeable networth of Rs 1,461 crore and tier-I capital adequacy ratio of 20.53% as on December 31, 2021 (Rs 1,358 crore and 18.32% as on March 31, 2021). Gearing improved to 7.2 times as on December 31, 2021, as compared with over 9 times through 2017-2020, mainly due to healthy capital generation and subdued loan-book growth fiscal 2021 onwards. While the capital cushion to absorb asset-side risk reduced, it remained adequate with the networth to net non-performing asset (NNPA) ratio of 2.4 times as on December 31, 2021 (2.3 times as on March 31, 2021). Nevertheless, capitalisation is expected to remain stable over the medium term.

 

Weakness:

Modest asset quality

Asset quality metrics have witnessed a significant uptick in GNPAs at 7.38% as on March 31, 2021, from 5.36% as on March 31, 2020, mainly due to impact of the pandemic. Second wave impacted the client segment materially leading to GNPAs of 11.4% as on June 30, 2021. Delinquencies improved steadily thereafter to GNPA of 8.84% as on December 31, 2021. However, including the impact from the RBI’s 12-Nov-21 norm, GNPA was 10.0% as on December 31, 2021. As on the same day, it had 0.7% of the book under restructuring.

 

Around three years ago, the company revamped its systems and process to improve its asset quality. CRISIL Ratings understand that the current NPAs have been primarily from the portfolio originated prior to fiscal 2019 and recent originations have negligible delinquencies. Further, over the last couple of years, focus has shifted towards home loans, particularly towards salaried customers. Hence, the proportion of non-salaried customers is likely to decline over the medium term.

 

Nevertheless, ability to arrest slippages and manage credit costs remains a key monitorable, as does its ability to recover from NPAs.

 

Moderate, albeit improving, scale of operations

The company remains a relatively small player in the Indian housing finance industry with around 1% market share. Gross advances grew at healthy compound annual growth rate of 12% through fiscal 2016-2020 to Rs 13,190 crore as on March 31, 2020, but steadily declined thereafter to Rs 11,997 crore as on December 31, 2021. The decline was due to lower disbursements and higher foreclosures (balance transfers and pre-payments) as the competition intensified in the low-interest rate environment. While the loan book remains concentrated in Maharashtra, the company is consciously growing its book outside the state (particularly in Hyderabad, Bengaluru, and Gurgaon). Consequently, Maharashtra accounted for 39% of the book as on March 31, 2021, down from 50% as on March 31, 2018.

Liquidity: Strong

Given the longer tenure on asset side, excluding the sanctioned but unutilised bank lines the asset and liability management (ALM) profile as on September 30, 2021, had negative cumulative mismatches in upto one year bucket. However, including bank lines, the inflows are fairly matched with the outflows on cumulative basis. Also, the company had overall liquidity cushion of Rs 2,117 crore as on March 16, 2022, which adequately covers the scheduled debt obligation of Rs 1,581 crore till end of June 2022 (including Rs 400 crore of commercial papers). The company also benefits from GIC Re’s support.

Outlook: Stable

CRISIL Ratings believe GIC Re will continue to support GIC HF, and the latter will maintain adequate capitalisation over the medium term.

Rating Sensitivity Factors

Upward Factors:

• Substantial and sustained improvement in market position and asset quality
• Better earnings profile with return on assets (RoA) above 2.5% on a steady state basis

 

Downward Factors:

• Dilution of GIC Re's ownership or material change in expectation of support from the shareholder
• Deterioration in asset quality leading to weakening of earnings profile, with RoA under 1.0% on a sustained basis

About the Company

GIC HF was founded in 1989 by GIC Re and its erstwhile subsidiaries, National Insurance Co Ltd, The New India Assurance Co Ltd, The Oriental Insurance Co Ltd, and United India Insurance Co Ltd, together with Unit Trust of India (UTI), Industrial Credit and Investment Corporation of India (ICICI), Industrial Finance Corporation of India (IFCI), Housing Development Finance Corporation (HDFC) and State Bank of India (SBI), all of which contributed to the initial share capital. Later on, HDFC, SBI, ICICI, UTI, and IFCI sold their holding in GIC HF and ceased to be promoters. As on December 31, 2021, the promoter group held a 42.41% stake in the company, with GIC Re being the largest shareholder.

 

GIC HF provides individual housing loans in Tier-I and Tier -2 markets. The portfolio mix consisted of 82% housing loans and 18% LAP, while the borrower profile comprised of 75% salaried customers and 25% non-salaried customers, as on March 31, 2021. The average ticket size stood at Rs 21.5 lakh and average LTV was at 59%. Company sourced 90% of new business from DSAs (direct selling agents) and remaining 10% from its branches. The company had a network of 72 branches as on March 31, 2021, with higher proportion in south and north parts of the country. Going forward, the company plans to expand into Tier 3 markets by opening satellite offices, which are low-cost small offices managed and located near a hub-branch.

 

Profit after tax (PAT) was Rs 106 crore on total income (net of interest expense) of Rs 417 crore in fiscal 2021, against Rs 46 crore and Rs 311 crore, respectively, in fiscal 2020. In the nine months ended December 31, 2021, net profit was Rs 125 crore on total income (net of interest expense) of Rs 331 crore mainly due to higher provisions. In the nine months ended December 31, 2020, net profit was Rs 26 crore on total income (net of interest expense) of Rs 301 crore.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of Instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue Size (Rs.Crore)	Complexity Level	Outstanding rating with Outlook
INE289B07065	Debenture	28-Mar-2022	3M T-bill + margin	07-June-2023	225	Simple	CRISIL AA+/Stable
INE289B07057	Debenture	21-Mar-2022	3M T-bill + margin	20-Oct-2023	225	Simple	CRISIL AA+/Stable
INE289B07032	Debenture	22-Feb-2021	6.94%	22-Feb-2023	300	Simple	CRISIL AA+/Stable
INE289B07040	Debenture	30-Mar-2021	6.94%	30-Mar-2023	195	Simple	CRISIL AA+/Stable
NA	Debenture*	NA	NA	NA	560	Simple	CRISIL AA+/Stable
NA	Commercial Paper	NA	NA	7 to 365 Days	1500	Simple	CRISIL A1+
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	100	NA	CRISIL AA+/Stable

*Yet to be issued