Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Support from largest shareholder, LIC, the public-sector insurer and a dominant player in the Indian life insurance space.

LIC is the single-largest shareholder in LIC Housing, with a stake of 45.24% as on June 30, 2024. LIC Housing benefits from LIC’s strong brand equity, access to its agency network for origination of loans and funding support. The company had last raised equity capital of ~ Rs 2,335 crore in fiscal 2022 from LIC to support its growth plans. Many senior management personnel of LIC Housing are on deputation from the parent. CRISIL Ratings believes LIC Housing will continue to benefit over the medium term from the strong support it receives from LIC in terms of ownership, funding, common branding and managerial inputs.

Adequate capitalisation

LIC Housing’s capitalisation is adequate and supported by our expectation of support from largest shareholder, in case of any requirement. It had a large capital base of Rs 31,395 crore as on March 31, 2024 (Rs 27,100 crore as on March 31, 2023). As on March 31, 2024, Tier-I and overall capital adequacy ratios were 19.2% and 20.8% respectively (16.6% and 18.2% as on March 31, 2023). Gearing levels also moderated to ~8 times as on March 31, 2024, as against ~9 times as on March 31, 2023, however, is higher than that of peers. Capitalisation is also supported by the healthy internal accruals with the company reporting a profit after tax of Rs 4,765 crore in fiscal 2024 and ~Rs 1,300 crore in the first quarter of fiscal 2025.

Diversified resource profile

LIC Housing has a diversified resource profile and benefits from the strong brand image of its parent, LIC, as reflected in competitive borrowing cost and a diverse set of investors. As on June 30, 2024, bonds accounted for 54% of the total borrowing, loans from banks at 34%, commercial paper share was at 4% while balance 8% was from other sources (mainly refinancing from NHB and fixed deposits and subordinated debt). Furthermore, flexibility to raise funds from the parent supports LIC Housing’s resource profile. The company’s weighted average borrowing cost also remained flattish at 7.76% during first quarter of fiscal 2025 and similar levels in fiscal 2024.

Sound asset quality in the individual housing loan segment but overall asset quality remain a monitorable

The company’s asset quality remained stable with Gross Stage III of 3.3% as on June 30, 2024, as well as on March 31, 2024, however, it has improved from 4.4% as on March 31, 2023, and 4.6% as on March 31, 2022. The improvement is driven by both lower incremental slippage as well as technical write-offs. The company has written of ~Rs 737 crore in the first quarter of fiscal 2025 as against Rs 2005 crore in fiscal 2024 (Rs 545 crore in fiscal 2023).

High share of individual home loans (IHL) (85% as on June 30, 2024) lends granularity to the portfolio and supports asset quality. The 90+ of IHL has improved to 1.4% as on June 30, 2024, as against 1.5% and 1.7% as on March 31, 2024, and March 31, 2023, respectively.

The share of project finance loan, Non-Housing Individual loans and non-housing corporate-Others (NHC-Others) in the overall book stood at 2.8%, 9.9% and 2.0% respectively as on June 30, 2024.Further, the restructured book was 1.5% of the overall loan book as on June 30, 2024, of which 0.4% is standard and remaining 1.1% is delinquent. The performance of these products and restructured book will remain a key monitorable. Any significant deterioration in asset quality will be a key rating sensitivity factor.

Weaknesses:

Moderate profitability due to presence in lower risk salaried home loan segment

LIC Housing’s profitability has improved, yet remain moderate, with return on managed assets (ROMA) of 1.9% in first quarter of fiscal 2025, as against 1.7% in fiscal 2024 and 1.1% in fiscal 2023, primarily driven by lower credit costs. The company’s NIMs stood at 2.8% in the first quarter of fiscal 2025 (3.1% and 2.4% for fiscal 2024 and fiscal 2023 respectively) despite competitive pressure on yields and rising cost of funds. Credit costs fell to 0.2% in the first quarter of fiscal 2025 from 0.6% in fiscal 2024 (0.7% in fiscal 2023), driven by lower incremental provisioning requirements due to lower slippages along with recoveries/writebacks.

The company has a high proportion of individual home loans to salaried customers, wherein competition remains high, thereby restricting company’s ability to charge higher yields. Although on a lower base, the company plans to grow into relatively high yielding non-housing loan book which should support profitability going forward.

Additionally, given that the company has an outstanding pool of technically written off accounts of over Rs 4,000 crore as on June 30, 2024, together for retail and corporate, recoveries from these could also support profitability over the medium term. Nevertheless, any significant increase in credit cost and, thereby, deterioration in profitability will remain a key monitorable.

Intense competition in the housing finance segment

LIC Housing is a leading player in the housing finance market; however, the company continues to face intense competition from banks, which account for a dominant share of the market. CRISIL Ratings believes LIC Housing will remain a leading housing finance company and maintain its market share, but it may face price-based competition over time amid increased focus by banks on this segment.