| Hsbc Investdirect Financial Services India Limited | ||
| Rating Reaffirmed | ||
| 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 A1+' rating on the Rs 1000 crore commercial paper (CP) programme of HSBC InvestDirect Financial Services India Ltd (HIFSL).
The rating on HIFSL centrally factors in CRISIL Rating’s expectation of continued support from ultimate parent, HSBC Holdings Plc (rated ‘A-/Stable/A-2’ by S&P Global). It also factors in strong capital position, evidenced by networth and gearing of Rs 470.8 crore and 0.4 time, respectively, as on March 31, 2021 (Rs 453.1 crore and 0.9 time, respectively, as on March 31, 2020). These rating strengths are partially offset by the modest scale of lending operations and high concentration in loan portfolio as top 20 borrowers accounted for more than 80% of the total AUM as on March 31, 2021.
In line with RBI's measures for Covid-19 pandemic, HIFSL had given moratorium on interest payment to few borrowers to provide some respite amidst uncertain volatile environment at the start of nationwide lockdown last fiscal. Further, under the RBI’s August 2020 Resolution Framework for COVID-19-related Stress, HIFSL has not done any restructuring on its loan portfolio till March 31, 2021. Nevertheless, the impact of the 2nd wave on the asset quality metrics remains a key monitorable |
Analytical Approach CRISIL’s rating on HIFSL is centrally based on S&P’s issuer credit rating on HSBC Holdings Plc. HSBC Holdings Plc holds a 100% stake in HIFSL, through its indirect subsidiaries. CRISIL Ratings believes that the 100% ownership, shared name and close operational linkages imply a strong moral obligation on the HSBC group (HSBC Holdings Plc and its subsidiaries) to support HIFSL. |
Key Rating Drivers & Detailed Description Strengths: * Strategic importance to, and expectation of strong support from, the HSBC Group The rating continues to be based on S&P Global's long-term issuer credit rating of 'A-/Stable/A-2' assigned to HSBC Holdings Plc. HIFSL was acquired in 2008 by HSBC Holdings Plc through its indirect subsidiaries and currently holds 100% stake in the company. The holding structure is likely to remain unchanged over the medium term, with HSBC Holdings Plc continuing to be the majority shareholder. High net worth and mass affluent customers comprise an important target segment for HSBC group globally. India as an emerging economy, forms an important business centre for the group. HIFSL’s services complement those of the HSBC group in India to this segment. It remains the flagship company for loans against security (LAS) in India.
Furthermore, HIFSL benefits from continued strong management, branding, funding, and operational linkages with the group. Its risk management policies, systems, and processes are also in line with the policies followed by the group globally. Further, HIFSL has access to a line of credit of Rs 200 crore (Rs 162 crore had been availed as on March 31, 2021) from the Indian parent HSBC InvestDirect (India) Ltd (HIDL). Moreover, HSBC Holdings Plc has through its indirect subsidiaries infused equity capital in HIFSL in the past and is likely to do so to support HIFSL’s growth plans.
Close operational linkages, 100% ownership, and a shared name imply a strong moral obligation on HSBC Holdings Plc to continue supporting HIFSL, both on an ongoing basis and in case of distress.
* Comfortable capitalisation In relation to the size and scale of its business, HIFSL remains well-capitalised. Networth and gearing of Rs 470.8 crore and 0.4 time, respectively, were reported as on March 31, 2021. Capitalisation is supported by the parent as HIFSL is 100% held by the holding company HIDL which in turn is 100% owned by HSBC Holdings Plc through its indirect subsidiaries. On a steady state basis, adjusted gearing is expected to remain below 3-4 times. However, given the company’s exposure to capital markets which are marked by inherent volatility, any weakening in asset quality, leading to erosion of networth, will be a key rating sensitivity factor.
Weakness: * Small scale of operations Operations continue to remain small, as reflected in the loan book of Rs 596.7 crore (includes interest accrued) as on March 31, 2021 (Rs 602 crore (includes interest accrued) as on March 31, 2020). Moreover, HIFSL is present in only one line of business i.e. lending against shares, mutual funds etc., where growth is highly linked to various domestic as well as global economic events. This is visible in the de-growth of the loan portfolio of HIFSL from Rs 729.5 crore (includes interest accrued) as on March 31, 2019 as due to the significant volatility in the capital market especially during the initial phase of Covid-19, the customers have either made prepayments or repaid on account of invocation of margin calls by HIFSL. Company also maintained cautious stance in terms of growth due to weak macro-economic environment over the last fiscal. Therefore, ability to successfully scale up business during various economic cycles, while managing asset quality and profitability will remain a key monitorable.
*High concentration in loan portfolio Although, HIFSL has strong risk management policies, which are in line with those followed globally by the HSBC group, the loan book is concentrated as top 20 borrowers constituted more than 80% of total advances as on March 31, 2021. Nevertheless, the company has strong credit underwriting and risk management practices. Even though the company is catering to HSBC Bank India customers, it is still conservative in its customer selection criteria. It observes an internal due diligence process before on boarding new customers and renewing limits for existing customers. Also, it accepts collateral only for a select list of eligible securities. The eligibility criteria is reviewed periodically. Consequently, HIFSL has had nil delinquencies so far.
However, given the concentrated nature of the portfolio, HIFSL’s ability to maintain asset quality even during economic downturns will remain a monitorable. |
Liquidity: Superior The asset-liability maturity profile is comfortable with no cumulative mismatches across all the buckets as on December 31, 2020 (even after excluding line of credit committed by other institutions in inflows). As on March 31, 2021, the company had total debt obligations of Rs 27.3 crores (including interest outflow on borrowings) over the next three months (From April to June 2020). Against this, as on same date, it had Rs 121 crore of liquidity (Rs 11.2 crore of cash balance in current account & liquid investments and Rs 110.1 crore of unutilized CC/OD lines). Further, HIFSL also has access to a line of credit of Rs 200 crore (Rs 162 crore had been availed as on March 31, 2021) from the Indian parent HSBC InvestDirect (India) Ltd (HIDL). Furthermore, CRISIL Ratings expects the company to receive need-based support from its parent, HSBC Holdings Plc and its subsidiaries. |
Rating Sensitivity factors Downward factors
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About the Company HIFSL was originally incorporated as Tajir Investment & Properties Limited on February 19, 1996. On August 8, 2007 pursuant to receipt of approval from Registrar of companies, the name of the company was changed to Investmart Financial Services Limited. Subsequently on receipt of approval from Registrar of companies on June 5, 2013, the name of the company was changed to HSBC InvestDirect Financial Services (India) Limited. The company is a wholly owned subsidiary of HSBC InvestDirect (India) Limited which is 100% owned by HSBC Holdings Plc through its indirect subsidiaries. HSBC InvestDirect (India) Limited was acquired by HSBC Violet Investment (Mauritius) Limited and HSBC Securities and Capital Markets (India) Private Limited in 2009 from IL & FS Investmart Ltd.
For fiscal 2021, the company reported a profit after tax and total income of Rs 17.6 crore and Rs 46.1 crore, respectively, as against a profit after tax of Rs 26.4 crore and a total income of Rs 71.3 crore, for fiscal 2020. |
Key Financial Indicators
*Provisional Note: All financial information for as on March 31, 2021 are as per unaudited financials Note: Above numbers are CRISIL Ratings adjusted numbers |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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