Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities of Kisetsu Saison Finance India Private Limited (Credit Saison India) at ‘CRISIL AA+/Stable/CRISIL A1+’.

 

The ratings reflects Credit Saison India’s strategic importance to, and expectation of strong financial support from, its parent, Credit Saison Co. Ltd, Japan (Credit Saison Group) and strong moral obligation of the latter to support the Indian subsidiary. The ratings also factor in Credit Saison’s India strong capitalisation metrics. These strengths are partially offset by nascent stage of India operations with limited seasoning and moderate operating expenses in the initial stage which may constrain the earnings profile as the loan book scales up.

 

Credit Saison India started its operations in 2019 with a partnership-led model wherein, the company partners with other NBFCs / FinTechs to help build its retail book. Through the partnership model, the company ties up with NBFCs and Fintech in two verticals – Wholesale Lending and Co-lending / Fin Tech Partnerships. Under wholesale lending, Credit Saison India lends to balance sheet of other NBFCs (specifically focusing on Consumer and MSMEs), which in turn further lends to the Consumer and MSME segment. On the other hand, under Co-lending / Fin Tech Partnerships, other NBFCs/Fintech players work closely with Credit Saison India to provide a range of services to support on customer origination, banking operations and collections. Given the nascent stage of operations, the AUM of the company stood at Rs 567 crore as on June 30, 2021, as against Rs 441 crore as on March 31, 2021 and Rs 210 crore as on March 31, 2020. Of this, around 72% of the portfolio constituted wholesale lending and remaining 28% constituted Co-lending/FinTech Partnerships.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has factored in the support expected from Credit Saison Japan given the strategic importance of Credit Saison India to the former, and the strong moral obligation to support the entity given the ownership, shared brand and strong operational integration.

Key Rating Drivers & Detailed Description

Strengths:

Strategic importance to, and expectation of strong financial support from, the parent, Credit Saison Co. Ltd., Japan: 

Credit Saison group has been in the consumer finance business for 70 years, primarily offering credit card and retail finance products. It has been in the credit card business since inception, with finance and other businesses being added to the portfolio 2001 onwards. Given the track record of operations, Credit Saison is amongst the top 3 credit card companies in Japan and also offers credit cards in alliance with leading businesses across different industries. The group currently has around 37 million cardholders under its portfolio and holds a shopping transaction value market share of ~13% in the Japanese credit card industry. Since 2001, the group has been continuously investing towards product diversification and currently has various products under its portfolio spanning across 5 verticals – payments, finance, leasing, real-estate and entertainment.  In order to ensure strong growth, Credit Saison has been expanding its operations globally and over the past 7 years has established presence in 10 countries through its subsidiaries and affiliates. With the consistent efforts towards growth through both segmental and geographical diversification, the group has been able to reach the asset size (total receivables outstanding) of Rs 176,144 crore[1]  as on June 30, 2021 at a consolidated level.

 

Credit Saison group’s credit profile is also supported by strong capitalisation metrics as the group has been generating sufficient internal accruals over the past several years. The networth of the group stood at Rs 35,9941 crore as on June 30, 2021 while the consolidated capital adequacy ratio was ~15.7%. The group has also been consistently generating healthy profits for the past 12 years. This is despite significant event-linked challenges including the Great East Japan earthquake, Money Lending Business Act and development of a new technology system, amongst others. For the year ended March 31, 2021, the group reported profit after tax (PAT) of Rs 2428 crore[2] and profit after tax of Rs 757 crore2 for the three months ended on June 30, 2021.

 

The group has also managed its asset quality well over the past decade with peak 90+ dpd at 3.54% (consolidated) in fiscal 2010 due to the global financial crisis. Between fiscal 2014 and fiscal 2020 too, the 90+ dpd has been very stable in the range of 1.48% to 1.69% (consolidated). Even during this Covid pandemic period, the asset quality has remained under control. With the increased focus on collections, the consolidated 90+ dpd decreased to 1.2% as on June 30, 2021 from 1.3% as on March 31, 2021 and 1.5% as on March 31, 2020.

 

Credit Saison Group plans to invest heavily towards the geographical expansion, specifically in the emerging markets and aims to become the leading neo-finance company in Asia. In line with the overall group strategy on geographical expansion, India is one of the most important markets for the group where the group plans to scale up its business rapidly with a focus on Consumer and MSME segments. As a part of the growth strategy, despite the Indian operations starting from 2019, the group has already infused equity capital of Rs 1,088 crore of which Rs 250 crores was infused in fiscal 2021 and another Rs 350 crores in August 2021. The support from the parent is also visible in arranging the debt funding support likely to be provided to the Indian operations through common Japanese bank relationships.

 

Further, the group maintains strong oversight on the Indian operations with deployment of senior management personnel from the Credit Saison Group in the operations of Credit Saison India. Credit Saison India board is controlled by the parent with Mr Katsumi Mizuno, Mr Kosuke Mori and Mr Yasuyuki Isobe as the common board of directors/ managing executive officers. The risk management policies, systems and processes used by Credit Saison India are centrally approved by the parent. The shared brand and the complete ownership also enhances the expectation of support from Credit Saison Group, if needed. Any material disruption in the Indian operations could, in CRISIL's view, have a significant impact on the reputation and franchise of the parent. Credit Saison India is expected to continue to benefit from the strong support from the Credit Saison Group. Any change in the management control by, or expectation of support from, Credit Saison Group will remain a key rating sensitivity factor.

 

Strong capitalisation:

Capitalization metrics are strongly supported by regular equity infusion by the parent. The parent has infused Rs 1,088 crore since inception. As a result of regular infusions by the parent entity, the reported networth of the company stood at Rs 743.7 crore as on June 30, 2021, as against Rs 739.1 crore as on March 31, 2021 and Rs 470.5 crore as on March 31, 2020. This has increased further by Rs 350 crore with additional equity being infused in August 2021. The company had no borrowings as on June 30, 2021, consequently, the gearing metrics remained nil as on the same date. Nevertheless, the company has started raising funds from banks/NBFCs and is expected to increase its debt profile with scaling up of operations. The company plans to maintain a steady state net gearing of 2-2.5 times in the medium term.

 

Weakness:

Nascent stage of operations with limited seasoning of portfolio

Credit Saison India has put in place strong risk management systems and policies, which ensures continuous monitoring of its borrowers as well as co-lending partners right from the stage of screening and selection. The company has a well-defined process, right from shortlisting of the partner to monitoring the portfolio performance.

 

The asset quality metrics also remained protected by the Credit Enhancement covers provided by the partner entities under co-lending vertical.

 

With the strong risk management systems put in place by the company and the risk-sharing with partners through hypothecation in receivables under wholesale lending and credit enhancement cover under co-lending, the asset quality metrics in terms of 90+ dpd remained comfortable at 0.73% as on June 30, 2021, as against 0.21% in fiscal 2021 and nil in fiscal 2020. Post accounting the credit enhancement, the 90+ dpd will be at 0.003% as on June 30, 2021 and 0.004% as on March 31, 2021.

 

In terms of collection efficiency[3] also, the company has shown resilience during this pandemic period. Within the wholesale segment which constitutes 70% of the portfolio, the company has reported 98-100% collection efficiency throughout the pandemic, including the moratorium period (April 2020 – August 2020) and second-wave of Covid-19 (April 2021 – June 2021).

 

On the other hand, in case of co-lending, the collection efficiency numbers were impacted in April 2020 dropping to 67% from 88% in March 2020. However, the same had improved to 95% in March, 2021. The collections under co-lending were again impacted in April 2021 and May 2021, due to the second-wave of Covid-19 and reached 87% and 89%, respectively. However, the same began to improve June onwards, with collection efficiency increasing to 94% in June 2021 and 111% in July 2021.

 

Nevertheless, the portfolio currently lacks seasoning and how the company uses its risk mitigants to maintain the asset quality remains to be seen. In addition to the existing business, the Company is evaluating the future roadmap and will start direct lending over the next few years. Therefore, sustenance on the asset quality metrics while scaling the portfolio up is a key monitorable.

 

Earnings profile expected to be constrained by high operating expenses as the company scales up

Credit Saison India turned profitable within 1 year of initiating its lending operations, with it reporting a profit after tax (PAT) of Rs 12.1 crore in fiscal 2021. This has been achieved due to low credit costs supported by the Credit Enhancements and nil cost of borrowings as the company remained debt-free during the given period. In the first quarter of fiscal 2022 also, the company continued to generate profits with profit after tax of Rs 2.5 crore for the period ending June 30, 2021. However, the earnings remained constrained due to moderate operating expenses. Operating expenses (as a percentage of advances) stood at 10.6% (annualized) as on June 30, 2021. Since the company is still at nascent stage of its operations, the operating expenses are expected to remain moderate, as the company invests more on technology, employees and risk management. Improvement of the earnings profile as the company scales up its operations therefore remains a key sensitivity factor.

[1] Converted at 1 JPY = 0.67 INR

[2] Converted at 1 JPY = 0.67 INR

[3] Collection efficiency = Total collections excluding prepayment divided by current billing & assuming no moratorium

Liquidity: Strong

Credit Saison India’s liquidity profile remained comfortable as on August 31, 2021, as the company had cash and cash equivalents of Rs 503.8 crore. Against this, the company had debt repayments (including interest) of Rs 31.7 crore for the next six months (September 2021 – February 2022). Asset-liability maturity profile of the company also remained comfortable as on June 30, 2021 with positive mismatches across the buckets up to 1 year. The company has a policy of maintaining liquidity cover of 3-6 months of debt repayments.

Outlook: Stable

CRISIL Ratings believes Credit Saison India will remain strategically important to, and will continue to receive financial, managerial, and operational support from, Credit Saison Co. Ltd.

Rating Sensitivity Factors

Upward factors

• Upward revision in CRISIL Rating's view on the credit profile of Credit Saison group

 

Downward factors

• Decline in support from the parent, Credit Saison Group or material change in the shareholding, or any downward revision in CRISIL’s view, on the credit profile of Credit Saison Group
• Any adverse movement in asset quality with 90+ dpd including write-offs increasing beyond 4% (net of any credit enhancements)  leading to a sustained impact on the earnings profile
• Company reporting losses on consistent basis

About Credit Saison India

Credit Saison India, a wholly owned subsidiary of Credit Saison Japan, was incorporated in June, 2018. The company received its NBFC license in September 2019 and started its operations with adoption of partnership-led model as its entry strategy, wherein, the company partners with other NBFCs / FinTechs to help build its retail book. Through the partnership model, the company ties up with top tier NBFCs and Fintech in the two verticals – Wholesale Lending and Co-lending / Fin Tech Partnerships.

 

About Credit Saison Co. Ltd.

Credit Saison Japan was founded in the year 1951. The group offers consumer finance/SME finance products. Till 2001, the group was primarily into the credit card business, post-which, it began to diversify its revenue streams and currently has a presence across multiple segments such as payments business (credit card service), finance/lending business, leasing and real estate. In 2013, the group began to further expand its operations globally and currently has presence in 10 countries through its subsidiaries. At the consolidated level, the group had a receivables outstanding of Rs 176,144 crore as on June 30, 2021. The net worth of the group stood at Rs 35,994 crore as on the same date. For the year ended March 31, 2021, the group reported profit after tax (PAT) of Rs 2,428 crore and profit after tax of Rs 757 crore for the three months ended on June 30, 2021.

Key Financial Indicators

As on/for the period ending	Units	Jun-21*	Mar-21	Mar-20
Total assets	Rs crore	751	746	473
Total assets under management (including co-lending)	Rs crore	567	441	210
Total income	Rs crore	18	46	10
Profit after tax	Rs crore	2.5	12	-13
90+ dpd*	%	0.73	0.21	-

*All figures for the period ending/as on June 30, 2021 are provisional

Note: All the reported 90+ dpd is covered by Credit Enhancement. Post accounting the credit enhancement cover the 90+ dpd would be 0.003% as on June 30, 2021 and 0.004% as on March 31, 2021.

Any other information: Not applicable