| LIC Housing Finance Limited | ||||||||||||||||||||||||||||||||||||||||||||||
| 'CRISIL AAA/Stable' assigned to Non Convertible Debentures | ||||||||||||||||||||||||||||||||||||||||||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||||||||||||||||||||||||||||||||||||||||||
| 1 crore = 10 million | ||||||||||||||||||||||||||||||||||||||||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AAA/Stable’ rating to Rs. 45,000 crore Non-convertible debenture and reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the debt instruments and bank facilities of LIC Housing Finance Limited (LIC Housing).
CRISIL Ratings has also withdrawn its ratings on Non-Convertible Debentures aggregating Rs. 9268 crore (See 'Annexure - Details of Rating Withdrawn’ for details) on receipt of required documentation for redemption and client’s confirmation. The withdrawal is in line with the CRISIL Ratings Policy on withdrawals.
The ratings continue to reflect support from the largest shareholder, Life Insurance Corporation of India (LIC), the public-sector insurer and a dominant player in the life insurance space in India. The ratings also factor in LIC Housing’s adequate capitalisation, sound asset quality in the individual housing loan segment and diversified resource profile. These strengths are partially offset by LIC Housing’s exposure to risks related to intense competition in the housing finance segment and moderate profitability. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has analyzed the standalone business and financial risk profiles of LIC Housing. Additionally, the ratings continue to factor in the company's strategic importance to, and the strong support it is expected to receive from, its promoter, LIC |
Key Rating Drivers & Detailed Description Strengths:
LIC is the single-largest shareholder in LIC Housing, with a stake of 45.24% as on September 30, 2023. LIC Housing benefits from LIC’s strong brand equity, access to its agency network for origination of loans and funding support. The company raised equity capital of ~ Rs 2,335 crore in fiscal 2022 from LIC to support its growth plans. Many LIC Housing’s senior management personnel 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.
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 27,100 crore as on March 31, 2023, as against Rs 24,672 crore as on March 31, 2022 (Rs 20,521 crore as on March 31, 2021). As on March 31, 2023, Tier-I and overall capital adequacy ratios were 16.56% and 18.23% respectively as against 16.23% and 18.08% as on March 31, 2022. However, gearing remained at 9.0 times as on March 31, 2023 (9.1 times as on March 31, 2022 and 10.1 time as on March 31, 2021), which 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 2891 crores in fiscal 2023, and Rs 1,324 crore in first quarter of fiscal 2024, as against Rs 2287 crores in fiscal 2022.
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, 2023, bonds accounted for 54% of the total borrowing, loans from banks at 31% and other sources (mainly refinancing from NHB and fixed deposits and subordinated debt) at 11%, while the commercial paper share was at 4%. Furthermore, flexibility to raise funds from the parent supports LIC Housing’s resource profile. Average borrowing cost remained flattish at 7.6% during first quarter of fiscal 2024 and fiscal 2023 as compared to 6.5% for fiscal 2022 (7.2% in fiscal 2021).
Asset quality has been supported by the high share of individual home loans at 83.2% as on March 31, 2023, wherein gross non-performing assets (GNPAs) remained comfortable at 1.6% as on March 31, 2023, compared to 1.74% as on March 31, 2022. As on June 30, 2023, the same was at 2.2%.
However, overall asset quality metrics remain modest, with GNPA ratio increasing to 4.98% as on June 30, 2023 from 4.49% as on March 31, 2023 (5.35% as on March 31, 2022) . Rise in GNPA during the first quarter of fiscal 2024 was primarily on account of asset quality challenges in the Project finance loans, Non-Housing Individual loans and Non housing corporate-Others (NHC-Others).
The share of project finance loan portfolio, Non-Housing Individual loans and Non housing corporate-Others (NHC-Others) in the overall book stood at 4.1%, 9.9% and 2.4% respectively as on June 30, 2023.
As on March 31, 2023, the asset quality metrics deteriorated in the project finance loan portfolio with GNPA stood at 40% as against 18.04% as on March 31, 2022. Further, the restructured portfolio for the company stood at ~0.3% of AUM as on June 30, 2023. The performance of this portfolio therefore remains a key monitorable. Any significant deterioration in asset quality will be a key rating sensitivity factor.
Weaknesses:
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. Further, the company has a lower proportion of relatively higher-yielding non-housing loan book compared with other players.
Profitability remains moderate, with return on assets (RoA) of 1.1% for fiscal 2023 as against 0.9% for fiscal 2022 and 1.2% for fiscal 2021.Nevertheless, the RoA has improved to 1.9% during first quarter of fiscal 2024.
Further, credit cost has improved over the years to 0.5% for first quarter of fiscal 2024 compared to 0.7% for fiscal 2023 and 0.8% for fiscal 2022. This is because a majority of its portfolio is in the salaried individual home loan segment. However, within segments, the company has provided adequately for the project finance loan portfolio. Nevertheless, any significant increase in credit cost and, thereby, deterioration in profitability will remain a key monitorable.
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. |
Liquidity: Superior LIC Housing had negative cumulative mismatches in maturity buckets of ALM (provisional) up to one year as on March 31, 2023, within the regulatory limits prescribed by NHB. Nevertheless, the company has displayed a strong ability to consistently raise funds in the market. As on August 31, 2023, total debt repayment for LIC Housing is around Rs 21,639.74 crore till November 30, 2023. Against this, as on August 31, 2023, the company had unutilized working capital bank lines and additional investment limit from banks & financial Institutions of Rs 18,450 crore as well as cash and liquid investments of Rs 4870.36 crore. LIC Housing has been active in the capital markets even in the current environment and has been able to raise funds; this, coupled with expectation of funding support from LIC, adds stability to LIC Housing's liquidity profile. |
Outlook: Stable CRISIL Ratings believes that LIC Housing will continue to benefit from the support it receives from LIC, and maintain its capitalisation metrics, sound asset quality and diversified resource profile. |
Rating Sensitivity factors Downward factors
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About the Company LIC Housing was promoted by LIC and other financial institutions in 1989. It is India’s second-largest housing finance company, with 9 regional offices, 24 back offices, and 281 marketing units in India, and 1 overseas representative office in Dubai as on March 31, 2023. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued ^Interchangeable with long term and short term bank loans.
Annexure: Details of Rating Withdrawn
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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