National Housing Bank 'CRISIL AAA/Stable' assigned to Non Convertible Debentures
Rating Action
*Rs 6,000 crore under Rural Housing Fund and Rs 3,000 crore under Urban Housing Fund 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 the Rs 5,000 crore non-convertible debentures of National Housing Bank (NHB) and reaffirmed its ratings on the existing debt instruments and bank facilities at 'CRISIL AAA/FAAA/Stable/CRISIL A1+'.
CRISIL Ratings has withdrawn its rating on Rs 2000 crore non-convertible debentures as the same were redeemed and there is no outstanding amount against the same. The withdrawal is in line with the withdrawal policy of CRISIL.
The ratings continue to reflect the support receives from the Government of India (GoI) on account of the institution’s key policy role in India’s housing finance sector. The ratings also factor in robust asset quality and healthy capitalisation. These strengths are partially offset by an average earnings profile, given the institution’s developmental role in the housing finance sector.
The nationwide lockdown imposed by the government to contain the Covid-19 pandemic had impacted the business of the housing finance industry. Though the lockdown restrictions were eased in a phased manner, they had impacted disbursements, collections and hence, funding requirement of housing finance companies (HFCs). NHB, being the nodal agency of the government to support the housing finance industry, played a very important role in channelising the funds to this industry in past 18 monthsIt has also implemented the support measures of the Reserve Bank of India (RBI) and GoI to help the industry during the pandemic. Of the total amount of Rs 5,000 crore allocated by the RBI under Additional Special Liquidity Facility, disbursement of Rs 3,927 crore was made under NHB’s Additional Special Refinance Facility Scheme till June 2021, and of the total amount of Rs 10,000 crore allocated by the RBI under Special Liquidity Facility-2, disbursement of Rs 7,662 crore was made under NHB’s Special Refinance Facility 2021 Scheme till June 2021. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has considered the standalone business and financial risk profiles of NHB, and has factored in support from GoI. This is given the 100% shareholding of by the Government of India, and the key policy and supervisory role it plays in the Indian Housing Finance Sector. |
Key Rating Drivers & Detailed Description Strengths:
NHB, a financial institution and 100% owned by government of India, carries out supervisory, refinancing, developmental role, and also play a key policy role in implementing government policy, for the housing industry. It provides long-term credit to licensed HFCs, scheduled banks, and other primary lending institutions. It is also one of the nodal agencies for the Credit Linked Subsidy Scheme (CLSS), under the GoI’s flagship programme for housing, Pradhan Mantri Awas Yojana (PMAY).
NHB reported gross non-performing assets (GNPAs) of 2.92% and nil net NPAs as on June 30, 2021, against 2.99% and 0.76%, respectively, a year earlier. The NPAs increased in FY20 primarily due to slippages in two accounts in the refinance portfolio. NHB has fully provided against these. It has obtained mandates from scheduled banks, regional rural banks, and urban cooperative banks for direct debit to their current accounts with the RBI if there is a delay or default in payment of refinance instalments. Additionally, it obtains a negative lien on their assets. Moreover, funds are primarily extended to HFCs with strong credit worthiness.
The capital to risk-weighted assets ratio (CRAR) was 12.14% as on June 30, 2021, against 12.74% as on June 30, 2020 (16.01% as on June 30, 2019). Capitalisation has gone down during the past two fiscals on account of increased provisioning on two large NPAs in the refinance portfolio. Nevertheless, the networth is healthy and net NPAs are nil, leading to high coverage for asset-side risks. Capitalisation is also supported by steady accrual, which is entirely retained in the absence of any dividend payout.
Weakness:
The interest margin is low as lending has been at competitive rates, while borrowing has been increasingly at market rates. Profitability, measured by return on assets (RoA; yearly average), was a 0.7% for fiscal 2021 compared with 0.2% for fiscal 2020 (1.1% for fiscal 2019). Profits during the past two fiscals have been impacted majorly on account of increased provisioning on exposures that slipped into NPAs. The net interest margin (NIM) was 1.3% for fiscal 2021 compared with 1.8% for the previous fiscal. |
Liquidity: Superior The ALM profile showed cumulative positive mismatches in all buckets of up to one year, as on August 31, 2021. Liquidity is sufficient with Rs 4,850 crore cash and liquid investments (in the form of government securities and bank deposits), and unutilised bank lines of Rs 8,100 crore as on September 30, 2021, against debt obligation of Rs 3,594 crore till December 2021. |
Outlook: Stable CRISIL Ratings believes NHB will continue to receive strong funding and operational support from GoI because of its public policy and supervisory role in India's housing sector. The asset protection mechanism available to NHB should continue, and the institution will likely maintain comfortable capitalisation over the medium term |
Rating Sensitivity factors Downward factors
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About the institution NHB, the apex institution in the housing finance sector, extends refinance support to HFCs, scheduled banks, regional rural banks, small finance banks, state apex cooperative housing finance societies, and state cooperative agriculture and rural development banks. Additionally, it manages the Rural Housing Fund; commercial banks deposit the shortfall in their priority sector advances to the fund. NHB also manages the Urban Housing Fund (as per Union Budget for fiscal 2014) and Affordable Housing Fund. Moreover, it is supervisor to the HFC sector and plays a key policy role in supporting GoI’s flagship programme for the development of the housing sector. NHB also advises state governments in formulating state housing policies.
Established in 1988 under the National Housing Bank Act, 1987, NHB began operations with an initial capital of Rs 100 crore. The RBI has divested its entire stake in NHB to the government for Rs 1,450 crore. With this divestment, the government now holds 100% stake with effect from March 2019. In July 2019, the government has transferred the functions of NHB for regulating HFCs to the RBI. NHB, a financial institution, will continue to carry out supervisory and refinancing and will also play a key policy role in the housing industry. Outstanding loans under refinance support were Rs 85,619 crore as on June 30, 2021.
Profit after tax (PAT) was Rs 663 crore on total income (net of interest expense) of Rs 1389 crore in fiscal 2021, as against a PAT of Rs 196 crore on total income (net of interest expense) of Rs 1714 crore, in the corresponding period of the previous fiscal. |
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)
*Rs 6,000 crore under RHF and Rs 3,000 crore under UHF @ Yet to be issued
Annexure: Details of rating withdrawn
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| Annexure - Details of Bank Lenders & Facilities | ||||||
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Criteria Details
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