| SMFG India Home Finance Company Limited | ||||||||
| 'CRISIL AAA/Stable' assigned to Non Convertible Debentures | ||||||||
| Rating Action | ||||||||
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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’ to the non-convertible debentures while reaffirming its ratings on bank facilities and other debt instruments of SMFG India Home Finance Company Limited (SMHFC) (formerly Fullerton India Home Finance Company Limited) at ‘CRISIL AAA/Stable/CRISIL A1+’.
Consequent to redemption, CRISIL Ratings has withdrawn its rating on Non-Convertible Debentures of Rs 100 crore (See Annexure 'Details of rating withdrawn' for details) in line with its withdrawal policy. CRISIL Ratings has received independent confirmation that these instruments are fully redeemed.
Post the acquisition by SMFG, the company had received board approval for a change in the name of the company. The company received board approval for the same on April 13, 2023 post which the process for regulatory approvals was initiated. On May 15, 2023, the company received the approval from Ministry of Corporate Affairs and received its Certificate of Registration from Reserve Bank of India (RBI) on May 30th. The logo of the company has also been rebranded in line with that of the ultimate parent i.e. Sumitomo Mitsui Financial Group Inc (SMFG).
The ratings continue to factor in strong support from Sumitomo Mitsui Financial Group Inc (SMFG; rated ‘A-/Stable’ by S&P Global) on an ongoing basis and in the form of need-based equity/debt capital support and operational/managerial synergies. SMFG also fully consolidates SMICC, being a subsidiary, in its financial statements. In CRISIL Ratings’ view, SMFG is also committed to providing equity capital or liquidity to support SMICC group’s growth plans or in the event of any exigency.
CRISIL Ratings notes that the name of the entity has changed from Fullerton India Home Finance Company Limited to SMFG India Home Finance Company Limited.
The ratings also reflect the comfortable capitalisation profile and the scale up in the portfolio. However, asset quality remains vulnerable to slippages given the borrower profile and earnings profile, which albeit improving, remains modest. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has analysed the consolidated business and financial risk profile of SMICC and its wholly owned subsidiary SMHFC, together referred to as SMFG India group. The companies have strong operational and financial linkages, common senior management, and shared brand. Post the consummation of the transaction, the ratings factor in strong support expected from, the parent, SMFG given that strategic importance of SMFG India Group to SMFG, the majority ownership, complete management control and expected shared brand.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The rating factors in expectations of continued support from SMFG (rated ‘A-/Stable’ by S&P Global) on an ongoing basis and in the event of any exigency. SMFG has senior level representation on the Board and various committees of SMICC and is involved in key decisions taken by the company. Further, SMFG also fully consolidates SMFG group, being a subsidiary, in its financial statements.
India continues to be one of the focus markets for SMFG Group, with the group tapping into the Indian market through its presence via Sumitomo Mitsui Banking Corporation (SMBC) which is more entrenched towards large corporate lending, and SMICC, wherein the latter allows SMFG to build a comprehensive financial service offering and also cater to the retail segment, thus increasing its clientele base on a global demographic.
CRISIL Ratings notes that the name of the entity has changed from Fullerton India Home Finance Company Limited to SMFG India Home Finance Company Limited.
In CRISIL Ratings’ view, SMFG is also committed to providing equity capital or liquidity to support SMICC group’s growth plans or in the event of any exigency. CRISIL Ratings also expects that SMFG Group's borrowings profile and costs will benefit both directly and indirectly leveraging SMFG’s global presence. Any material disruption in SMFG India Group’s business could, in CRISIL Ratings’ view, have a significant impact on the reputation and franchise of the parent.
Any material deviation from the proposed brand sharing between SMFG Group and SMFG will remain a key monitorable.
On a standalone basis, the net-worth of SMHFC continues to be comfortable at Rs 810 crores as on March 31, 2023, as compared to Rs 673 crores as on March 31, 2022, primarily driven by equity infusion of Rs 100 crore by SMICC and positive internal accruals during the period as the entity reported PAT of Rs 40 crore during fiscal 2023. Although, on a leverage front, overall gearing moderated to 6.9 times as on March 31, 2023, as against 5.9 times as on March 31, 2022, driven by higher amount of borrowings availed during the period, compared to lower addition in net-worth.
In terms of capital adequacy ratio (CAR), as on March 31, 2023, SMHFC’s overall CAR stood at 20.9% with tier 1 CAR at 14.1%, well above the regulatory requirements.
Capitalisation metrics have been supported by regular and timely equity infusions by SMICC. The company has received high quantum of initial capital and subsequently more equity infusion from parent to support its growth plans. The parent has infused Rs 710 crore since inception of which Rs 200 crore was infused in July 2019. In FY23, parent entity infused Rs 100 crore in February 2023.
The group maintains liquidity in excess of 3 months of outflows. Including fee-paying committed and undrawn CC/WCDL lines, this increases further to 3-5 months of outflows. This liquidity cushion was higher during periods of stress as was seen during the pandemic period when the group was having liquidity cover for over 6 months of debt repayment outflows. This was also visible during demonetisation period. In addition, the diversified lender base, low reliance on short term funding (commercial paper) and well-matched asset-liability profile to minimise tenor and refinancing risks provide adequate support. Additionally, even during the past one year, the company continued to raise funds at optimal costs. The group is thus likely to be well-placed to withstand any liquidity pressure in the market, if any. CRISIL Ratings also expects that SMFG India Group's borrowings profile and costs will benefit leveraging SMFG’s global presence.
Weaknesses:
For SMHFC, driven by higher demand for housing credit on a macro-economic basis, AUM of the entity witnessed an annualized growth of ~58%, during the fiscal 2023, to Rs.7,032 crore, as against Rs.4,457 crore as on March 31, 2022. Of this, housing loans constituted the bulk at 60%, followed by LAP at 35% and construction finance which was around 5%.
However, post implementation of prudential norms on Income Recognition and asset classification (IRAC) by RBI, asset quality metrics for the company improved with gross NPA (GNPA) rising to 3.7% as on March 31, 2023, as compared to 6.2% as on March 31, 2022 (5.6% as on March 31, 2021). Further, the restructured book, as on December 31, 2022, accounted for 1.5% of the AUM, out of which provisions have been created for ~52% of the restructured book.
Although, the collection efficiencies for the company had improved to about 99% in December 2021 after witnessing a drop post the second wave of the pandemic and have remained stable since then. Over the years, risk management processes and data analytics capability have been strengthened. Underwriting norms and monitoring mechanisms have been reinforced. The lending business has also been supported through investments in risk analytics and technology. Underwriting and collection norms have been tightened based on portfolio performance trends and early warning indicators.
Nevertheless, the ability to manage collections and improve asset quality metrics is a critical monitorable.
SMHFC commenced lending operations in December 2015 with FY17 being the first full year of operations. Impacted by COVID pandemic, growth profile of the entity was impacted in FY22, with SMHFC registering a tepid AUM growth of 6% during FY22 to Rs 4,457 crore. However, amidst the improvement in the macroeconomic environment the AUM grew by ~58% during fiscal 2023, to Rs 7,032 crore. Of this, housing loans made up 60% of total loan portfolio, while the remaining share was constituted by LAP (35%) and construction finance (5%). Going forward, in line with RBI circular, ability of SMHFC to maintain a minimum of 60% of its net assets towards housing loans remains a key monitorable, whilst ensuring significant growth in loan book.
Historically, the earnings profile for SMHFC has been constrained by elevated operating expenses and credit cost. Credit costs for SMHFC remained controlled at 0.5% during FY23, as compared to 1.3% in FY22 and 3.6% in FY21. Nevertheless, the operating expenses continues to remain elevated with the operating expenses as a percentage of total assets standing at 4.1% for fiscal 2023, as against 2.8% for fiscal 2022. As a result, SMHFC reported improvement in absolute profitability with its PAT rising to Rs 40 crore for fiscal 2023, as against Rs 17 crore during FY22, translating into a modest return on managed assets (RoMA) at 0.7% during FY23 (0.3% for fiscal 2022). Going forward, ability to improve the earnings profile as the portfolio scales up will remain a key monitorable. |
Liquidity: Superior Liquidity profile of the group remained adequate owing to presence of unencumbered liquidity surplus of Rs.5,512 crore in the form of cash and short-term investment balance as on April 30, 2023. This was further supported by unutilized bank lines amounting to Rs.1,500 crore and inflows from advances. Against the same, the group had total principal debt repayments amounting to Rs 6,093 crore till October 2023. |
Outlook: Stable CRISIL Ratings believes SMHFC will remain strategically important to, and continue to receive support from, SMFG, and will sustain its growth momentum while maintaining its healthy financial risk profile |
Rating Sensitivity factors Downward Factors:
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About the Company The company started its operation in December 2015; offering home loan and loan against property in the affordable segment to the salaried and self-employed professionals. SMHFC is a 100% owned subsidiary of SMICC. Following the consummation of transaction between SMFG and FFH, 74.9% shares in SMICC are held by SMFG while FFH which in turn is a wholly owned subsidiary of Temasek continues to hold the balance stake. Post the change in Ownership the name of the entity has been changed to SMFG India Home Finance Company Limited.
Product offerings include secured products which comprise primarily of mortgages/loans against property, and commercial vehicle loans. It currently operates out of 125 distribution points. |
Key Financial Indicators
^based on total managed assets *IND-AS @ Direct Assignment is included in Borrowings for calculation of Adjusted Gearing Ratios are CRISIL Ratings Adjusted |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued
Annexure - Details of Rating Withdrawn
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||
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Criteria Details
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