Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Expectation of continued strong support from the parent: ICICI HFC is a strategically important subsidiary for ICICI Bank, with a presence in product segments and geographies complementing the offerings of the bank. It provides housing loans (with continued focus on housing), loans against property (LAP) and developer financing. ICICI Bank has infused capital of Rs 500 crore in May 2024 (FY2025) to support the growth plans of the company. The bank also continues to provide strategic and management support to the company via representation on the board and monitoring of growth strategies and performance. Most of the current senior management of ICICI HFC has been drawn from ICICI Bank, having vast and well-rounded experience across domains. The company has significantly scaled up its distribution and credit capacities to deepen its presence in individual home loans and LAP segments. Strong parentage further enables the company to raise funds at competitive rates.

ICICI Bank holds a 100% stake in ICICI HFC and is likely to maintain a majority share in the company going forward too.

Diversified resource profile: The resource profile is stable and well-diversified. Total outstanding borrowing was Rs 23,250 crore as on December 31, 2024, comprising bank debt (24% of total borrowing), bonds (40%), commercial paper (8%), fixed deposits (18%) and refinance from the National Housing Bank (NHB; 10%). The company has successfully raised medium-term and long-term debt from several investors at competitive rates. Cost of borrowing was around 7.8% (annualized) for the nine months ending December 31, 2024. Being part of the ICICI group enables the company to raise resources at competitive rates.

Stable asset quality, though sustainability of this trajectory remains a monitorable: Asset quality has improved marginally as gross stage-3 assets fell to 1.6% as on December 31, 2024, from 1.7% as on March 31, 2024 (3.1% as of March 31, 2023). With a provisioning coverage ratio of 36%, net NPAs stood at 1.0% as on December 31, 2024, reduced from 1.1% as on March 31, 2024.

In the construction finance segment, the company significantly ran down the legacy book. The company has been selective with its construction finance (CF) portfolio, which formed 4% of the gross AUM as on December 31, 2024, as against 15% as on March 31, 2017. In the home loan and LAP segments, while the gross stage-3 assets inched up post the third wave of the Covid-19 pandemic, the company saw an improvement in collections and rollbacks, leading to relatively lower gross stage-3 assets as of December 31, 2024.

Weakness:

Moderate, though, improving profitability: Steady improvement in asset quality with other variables remaining unchanged, has supported the overall profitability over fiscal 2024. Profit after tax (PAT) and return on average assets (RoA) increased to Rs 572 crore and 2.1% respectively for fiscal 2024 from Rs 302 crore and 1.4%, respectively for fiscal 2023. This was primarily driven by a reduction in credit costs to 0.2% for fiscal 2024 from 0.8% for the previous fiscal. Further, continued investment in infrastructure, technology and manpower (operating expense at 2.1% of average managed assets in fiscal 2024) has resulted in improved productivity and overall profitability. During the nine months ended December 31, 2024, it reported a PAT of Rs 503 crore with an annualized RoA of 1.9% as against a PAT of Rs 403 crore, with an annualized RoA of 2.0% for the corresponding period of the previous fiscal.

Continued focus on retail home loans and LAP alongside strengthening of credit, risk and collections infrastructure, has been a catalyst for restoration in asset quality in the recent past. However, as the business scales, the company’s ability to sustain the improvement in asset quality and profitability remains a monitorable.