Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AAA/Stable’ rating to Rs.2,000 crore non-convertible debentures of ICICI Home Finance Company Limited (ICICI Home). The ratings on the existing debt instruments have been reaffirmed at ‘CRISIL AAA/FAAA/CRISIL PP-MLD AAAr/Stable’. CRISIL Ratings has withdrawn its ratings on Rs 105 crore non-convertible debentures and Rs 201.3 crore long-term principal-protected market-linked debentures, in line with its withdrawal policy, given nil outstanding against the same post redemption.

 

The ratings continue to reflect the expectation of continued strong support from the promoter, ICICI Bank Ltd (ICICI Bank; 'CRISIL AAA/CRISIL AA+/Stable') and the company’s diversified resource profile. These strengths are partially offset by average asset quality and profitability.

 

In-line with the measures announced by the RBI for Covid-19, ICICI Home had also offered moratorium to its borrowers. Though collections declined during the initial months of the moratorium, they inched up gradually till March 2021. However, the second wave of the Covid-19 pandemic had resulted in intermittent lockdowns and localised restrictions, which impacted the collections again. Although the impact has been moderate compared to the last fiscal, and collections have started picking up, any change in the payment discipline of borrowers may affect the delinquency levels.

 

Under the initial Covid-19 restructuring scheme announced by the RBI dated August 6, 2020, the company restructured around 3.4% of assets under management (AUM) as on June 30, 2021. Pursuant to RBI’s May 2021 resolution framework 2.0, the company is reviewing applications and overall restructuring could be higher at 4-5%. Nevertheless, the ability of the company to manage collections and asset quality in fiscal 2022 will be a key monitorable. The impact of the third wave of the pandemic, if and when it comes, in terms of spread, intensity and duration will also be closely monitored.

Analytical Approach

The ratings factor in expectation of strong support from the parent, ICICI Bank. CRISIL Ratings believes ICICI Bank will continue to support ICICI Home, considering the strategic importance of the latter, shared brand and 100% shareholding.

Key Rating Drivers & Detailed Description

Strengths:

* Expectation of continued strong support from the parent

ICICI Home is a strategically important subsidiary for ICICI Bank, with presence in product segments and geographies that complement the bank’s offerings. It provides housing loans (with increased focus towards affordable housing), loans against property (LAP), lease rental discounting (LRD), developer financing and gold financing. ICICI Bank continues to provide strategic and management support to the company by way of representation on the board and monitoring of growth strategies and performance. Most of the current senior management of ICICI Home 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. Further, strong parentage enables the company to raise funds at competitive rates.

 

ICICI Bank holds 100% stake in ICICI Home, and is likely to maintain majority share in the company.

 

* Diversified resource profile

The company’s resource profile is stable and well-diversified. Total outstanding borrowing was Rs 12,313 crore as on June 30, 2021, comprising bank borrowing (28% of total borrowing; includes external commercial borrowing), bonds (23%), commercial paper (6%), fixed deposits (26%) and National Housing Board refinance (NHB; 16%). The company has been successfully tapping the debt markets by raising medium- and long-term debt from several investors at competitive rates. It has been able to raise funds through external commercial borrowing (ECB) and NHB refinance. It also started securitisation in fiscal 2020, and did transactions worth Rs 1,550 crore in fiscal 2021. Cost of borrowing[1] stood at 7.3% on annualized basis for quarter ended June 30, 2021 (8.3% in fiscal 2021). Being part of the ICICI group also supports the ability of the company to raise resources at competitive rates.

 

Weakness

* Average asset quality and profitability

Asset quality is average, with gross stage-3 assets at 8.6% as on June 30, 2021 (6.6% as on March 31, 2021). Higher delinquencies in the construction finance (CF) portfolio had contributed to increase in stage 3 assets in fiscals 2018 and 2019; however, in the last few quarters, home loans and LAP portfolios have also seen increased delinquencies, given the COVID-19 pandemic.

 

In the CF segment, the company significantly ran down the legacy book and relaunched the business in fiscal 2020 with stronger guardrails and lower ticket sizes. The company has been selective in this segment with CF portfolio forming 2% of AUM as on June 30, 2021 as against 15% of the AUM as on March 31, 2017. In the home loan and LAP segment, while the company has seen improvement in collections and higher rollbacks since July 2021, it may take a few quarters for the same to reflect in the form of significant improvement in the reported asset quality metrics.

 

The stress in asset quality has also led to moderation in profitability with profit after tax (PAT) and return on assets (RoA) being at Rs 22 crore and 0.14%, respectively, in fiscal 2021 (Rs 0.3 crore and 0.002% in fiscal 2020). The provision expense increased to Rs 269 crore during fiscal 2021 (credit cost[2] of 1.7%) from Rs 193 crore during previous fiscal (credit cost of 1.3%). Further, continued investment towards infrastructure, technology and manpower (operating expense[3] at 1.7% of average total assets in fiscal 2021) has also kept the profitability subdued. 

 

At the pre-provisioning level, performance improved in fiscal 2021 (2.0%) over fiscal 2020 (1.5%). For the quarter ended June 30, 2021, the company reported PAT of Rs 17 crore with an annualized RoA of 0.5%.

 

While focus largely on retail home loans and LAP, strengthening of credit, risk and collection teams and expectation of resolution in chunky developer loans could improve asset quality, given current difficult macro environment, the trend in asset quality and its impact on profitability will remain monitorable.

[1] The analytical ratios have been calculated as per CRISIL Ratings’ methodology

[2] The analytical ratios have been calculated as per CRISIL Ratings’ methodology

[3] The analytical ratios have been calculated as per CRISIL Ratings’ methodology

Liquidity: Superior

The company had cash and cash equivalent, and liquid investments aggregating to Rs 301 crore as on August 31, 2021, with further cushion available through unutilised sanctioned bank lines of Rs 1,700 crore. The liquid surplus will sufficiently cover wholesale principal obligation of Rs 993 crore for the next six months till February 28, 2022. With respect to asset liability management, there were mismatches in some buckets as on March 31, 2021, as seen for peers in this sector, though including bank lines, the inflow fairly matched the outflow on a cumulative basis. The company also benefits from the support from ICICI Bank.

Outlook: Stable

CRISIL Ratings believes ICICI Bank will retain its majority shareholding in ICICI Home, and continue to extend strategic, management and financial support to the company. ICICI Home will likely maintain diversified resource profile over the medium term.

Rating Sensitivity Factors

Downward Factors

• Downward revision in the credit risk profile of ICICI Bank by 1 notch may lead to a similar rating action on ICICI Home
• Any material change in the shareholding or support philosophy of ICICI Bank
• Significant weakening in the asset quality, also impacting profitability

About the Company

Incorporated in 1999, ICICI Home is a wholly owned subsidiary of ICICI Bank. The company provides housing loans, LAP, developer financing, and also ventured into gold financing. The AUM and loan portfolio stood at Rs 16,987 crore and Rs 13,731 crore, respectively, as on June 30, 2021. Housing loans, LAP, and developer finance accounted for 61%, 37% and 2%, respectively, of the AUM. Loan against shares (being run down) and gold financing constitute a negligible share. ICICI Home ventured into consumer durable financing in fiscal 2019; however, it has now been discontinued in fiscal 2020. It had a network of 154 branches as on June 30, 2021.

 

The company reported PAT of Rs 21.7 crore on total income of Rs 1,613.5 crore in fiscal 2021, as against Rs 0.3 crore and Rs 1,669.9 crore, respectively, in fiscal 2020. For the quarter ended June 30, 2021, the company reported PAT of Rs 17.2 crore on total income of Rs 382.3 crore (Rs 1.3 crore on total income of Rs 377.2 crore for the corresponding period of the previous fiscal).

Key Financial Indicators

As on/for the period ended June 30	Unit	2021	2020
Total assets	Rs crore	14908	16383
Total income	Rs crore	382	377
Profit after tax (PAT)	Rs crore	17	1
Return on assets (annualised)	%	0.45	0.03
Adjusted gearing	Times	8.6	9.7
Gross stage-3 assets	%	8.6	5.5

Note: The analytical ratios have been calculated as per CRISIL Ratings’ methodology

Any other information: Not applicable