Detailed Rationale

CRISIL Ratings has revised its outlook on the long-term debt instruments of Tata Motors Finance Limited Limited (TMFL) to ‘Positive’ from ‘Stable’ and has reaffirmed the rating at ‘CRISIL AA/CRISIL A+’.  The rating on the commercial paper programme of TMFL has been reaffirmed at ‘CRISIL A1+’.

 

The revision in outlook is in line with the similar action on the outstanding ratings on the debt instruments of ultimate parent of TMFL, Tata Motors Limited (TML; CRISIL AA/Positive/CRISIL A1+). 

 

For arriving at the ratings, CRISIL Ratings has considered the consolidated business and financial risk profiles of TMF Holdings Limited (TMFHL; 'CRISIL AA/ Positive/CRISIL A1+') and its subsidiaries, TMFL and TMF Business Services Limited (TMFBSL; 'CRISIL AA/Positive/CRISIL A1+'), given the integration of operations and commonality of management, together referred to as the TMF Group. The ratings continue to reflect the expectation of strong support from the ultimate parent TML to TMFHL and its subsidiaries: TMFL and TMFBSL.

 

The ratings also factor in the group’s strong position in the commercial vehicle (CV) finance segment. However, these strengths are partially offset by moderate, albeit improving, asset quality of the portfolio.

 

The rating on the perpetual bonds reflects the extent of buffer over the regulatory capital adequacy requirements, and high financial flexibility due to TMLs ownership. CRISIL Ratings believes that it will maintain this cushion going forward

Analytical Approach

CRISIL Ratings has considered the consolidated business and financial risk profiles of TMFHL and its subsidiaries, TMFL and TMFBSL, given the integration of operations and commonality of management. Furthermore, CRISIL Ratings has factored in expectation of strong support to TMF group from TML, because of TMF group’s strategic importance to TML, being its captive financing arm.

 

The ratings on the perpetual bonds additionally take into account the deeply subordinated nature of these instruments whereby TMFL is restricted from servicing these instruments if it breaches the minimum regulatory capital requirement, or if the regulator denies permission to the company to make payments of interest and principal, if it reports losses.

 

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:

• High strategic importance to and expectation of strong support from TML

The ratings on the debt instruments of TMF group are based upon the expectation of strong support from the ultimate parent TML. This is because of the high strategic importance of TMF group to its parent, given the group being captive financing arm of parent. TMFHL and its subsidiaries have a high level of managerial and operational integration, where the parent extends management support through representation of its senior management on the boards of TMFL and TMFBSL.

 

In the past, TML has infused equity capital into TMFHL at regular intervals. TML infused Rs 300 crore in fiscal 2018, Rs 600 crore in fiscal 2019 and Rs 150 crore in fiscal 2020. CRISIL Ratings believes TML will continue to provide similar support to the group through TMFHL, enabling the companies to maintain their capital adequacy above the minimum requirement.

 

The ANW of TMFHL is comfortable at 37.49% as on December 31, 2023, while capital adequacy ratio of TMFL is also comfortable at 22.05% as on December 31, 2023.  CRISIL Ratings believes TMFL and TMFBSL will continue to receive need-based support from TML through TMFHL, to maintain their capital adequacy above the minimum requirement.

 

CRISIL Ratings has also taken note of the recent measures by Reserve Bank of India (RBI) covering the Banking and NBFC sector. Firstly, on the asset side for NBFCs, there is an increase in risk weights for unsecured consumer loans (including credit card receivables), by 25 percentage points to 125% from 100% earlier. This regulation applies to all retail loans except housing loans, vehicle loans, educational loans, loans against gold and microfinance/SHG loans. The increase in risk-weighted assets is unlikely to have any material impact on the capitalisation of the TMF group, given the nature of loans being provided by them.

 

Secondly, there is an increase in risk weights for Bank’s exposure to NBFCs by 25 percentage points (over and above the risk weight associated with the given external rating) in all cases where the extant risk weight as per external rating of NBFCs is below 100%. Herein, loans to HFCs, and loans to NBFCs which are eligible for classification as priority sector are excluded. This development may potentially lead to a increase in the cost of bank borrowings for NBFC sector. This could lead to diversification in the borrowings mix with higher share of capital market instruments and ECBs, amongst others. The ability of NBFCs to pass on the potentially higher borrowing costs will be monitored.

 

Further, the recent circular by the Reserve Bank of India (RBI) pertaining to the investments made by regulated entities including non-banking financial companies (NBFCs) in Alternative Investment Funds (AIFs) is not expected to have any material impact,.

 

Moreover, CRISIL Ratings also believes TML will continue to have majority ownership in TMFL through the holding company structure. This, along with operational integration and a shared brand name, makes TML morally obligated to support TMF group.

 

• Leading position in CV finance

TMF group is a leading commercial vehicle financier in India. Post demerger, the entire NBFC lending activities in TMF group is carried out under TMFL. The AUM of TMFL stood at Rs. 40,069 crore as on September 30, 2023.  Given the captive nature of the business, TMF has a strong partnership with dealers of TML and provide them financing support as well. Of the total AUM as on Sep 30, 2023, share of new vehicle financing portfolio stood at around 69%, while share of used vehicle financing portfolio stood at around 21% and corporate lending business portfolio stood at 10%.  Over the last few years, the share of used vehicle financing for TMF group has increased from 13% in March 2021 to 21% as of Sep 30, 2023.

 

Weaknesses:

• Moderate, though improving, asset quality

The asset quality metrics for TMF group were impacted owing to implementation of IRACP norms from October 2022 onwards. In first nine months of fiscal 2024, the asset quality metrics have improved although, remained elevated with GNPA and NNPA of NBFC business having stood at 7.18% and 3.95% respectively as on December 31, 2023 (9.26% and 5.02% respectively as on March 31, 2023). The improvement is majorly on the account of continued strong collections and write offs (Rs. 762 crore (net of recoveries) in first nine months of fiscal 2024).

 

Going forward company’s ability to manage its asset quality and improve profitability will remain key monitorable. CRISIL Ratings understands that the group is committed to bringing in additional equity capital to provide cushion against the asset side risk and maintain capitalisation metrics well within the regulatory thresholds. The overall rating continues to factor in expectation of timely financial and capital support from TML in case of any exigency.

Liquidity: Strong

TMFL’s asset liability maturity (ALM) profile shows cumulative positive mismatches up to 1 year maturity buckets as on December 31, 2023.  On a consolidated basis for TMF group, as on December 31, 2023, the group had repayments of Rs 8,365 crore for the three months till March 2024 (of which Rs 1960 crore of CC/WCDL limits are expected to be rolled over). Against the same, the group had cash and liquid investments of Rs. 2255 crore and unutilised bank lines of Rs. 4389 (excluding cc/WCDL rollover) crore. TMFHL also has unutilised ICD lines of Rs 1,000 crore from TML on December 31, 2023. Apart from these company has G Sec and T Bill Investments of Rs 1090 crore kept for LCR requirements.

Outlook; Positive

The rating outlook on TMFL is closely linked to the rating outlook on TML. CRISIL Ratings believes TMF Group will be strategically important to TML, being captive financiers, and will benefit from the financial and management support extended by TML. CRISIL Ratings will continue to closely monitor any development that can significantly alter the extent of support by TML to TMF group.

Rating Sensitivity factors

Upward factors:

• Changes in the rating outlook or ratings on TML by 1 notch or higher may lead to similar changes in the rating outlook or ratings on TMF Group

 

Downward factors:

• Downgrade in the rating of TML by 1 notch or higher
• Any change in the support philosophy of TML, resulting in reduced support to the TMF group
• Sharp deterioration in the consolidated asset quality, impacting the profitability and capital level of the TMF group
• Any change in regulations or guidelines governing perpetual debt instruments which may have an adverse impact on the features of such instruments

About the Company

With the implementation of the scheme of arrangement effective June 30, 2023, the entire NBFC business has been transferred to current TMFL. TMFL is a non-deposit-taking systematically important, non-banking finance Company is a wholly owned subsidiary of TMFHL. TMFL focusses on new vehicle financing, pre-owned vehicle financing and extending loans to dealers and vendors within TML ecosystem. As on September 30, 2023, the company's standalone AUM stood at Rs 40,069 crore. 

 

 For the nine months ending December 31, 2023, TMFL reported net profit of Rs 261 crore on total income (net of interest expenses) of Rs 2134 crore (basis IND AS).

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of the Instrument	Date of Allotment	Coupon rate (%)	Maturity Date	Amount (Rs crore)	Complexity Levels	Rating assigned  with Outlook
INE477S08092	Debenture	20-May-21	3 MONTH  TBILL LINK	20-May-24	195	Simple	CRISIL AA/Positive
INE477S08100	Debenture	25-Feb-22	7.48%	25-Feb-25	400	Simple	CRISIL AA/Positive
INE477S08118	Debenture	25-Feb-22	Zero Interest  Coupon	21-Feb-25	100	Simple	CRISIL AA/Positive
NA	Debenture^	NA	NA	NA	1000	Simple	CRISIL AA/Positive
NA	Debenture^	NA	NA	NA	1305	Simple	CRISIL AA/Positive
INE477S08126	Perpetual Bond	22-Mar-22	8.40%	Perpetual*	100	Highly Complex	CRISIL A+/Positive
INE477S08134	Perpetual Bond	03-Jun-22	9.3%	Perpetual*	200	Highly Complex	CRISIL A+/Positive
INE477S08142	Perpetual Bond	12-Jul-22	9.23%	Perpetual*	160	Highly Complex	CRISIL A+/Positive
NA	Perpetual Bond^	NA	NA	NA	40	Highly Complex	CRISIL A+/Positive
NA	Perpetual Bonds^	NA	NA	NA	1000	Highly Complex	CRISIL A+/Positive
NA	Subordinate Debt^	NA	NA	NA	200	Complex	CRISIL AA/Positive
NA	Commercial Paper	NA	NA	7-365 days	2500	Simple	CRISIL A1+
NA	Perpetual Debt^	NA	NA	NA	500	Highly complex	CRISIL A+/Positive
INE601U08242	Perpetual Debt	15-Jun-21	9.10%	15-Jun-31	260	Highly complex	CRISIL A+/Positive
INE601U08275	Perpetual Debt	03-Dec-21	8.35%	03-Dec-31	125	Highly complex	CRISIL A+/Positive
INE909H08188	Perpetual Debt	05-Sep-14	11.10%	05-Sep-24	50.3	Highly complex	CRISIL A+/Positive
NA	Perpetual Debt^	NA	NA	NA	115	Highly complex	CRISIL A+/Positive
NA	Perpetual Debt ^	NA	NA	NA	39.7	Highly complex	CRISIL A+/Positive
NA	Non-convertible debentures ^	NA	NA	NA	2300	Simple	CRISIL AA/Positive
NA	Non-convertible debentures ^	NA	NA	NA	390	Simple	CRISIL AA/Positive
INE601U08234	Non-convertible debentures	31-May-21	3 M T Bill Linked	31-May-24	400	Simple	CRISIL AA/Positive
INE601U08259	Non-convertible debentures	25-Jun-21	7.15%	25-Jun-24	525	Simple	CRISIL AA/Positive
NA	Non-convertible debentures^	NA	NA	NA	1137.7	Simple	CRISIL AA/Positive
INE601U08283	Non-convertible debentures	21-Jan-22	Zero Interest Coupon	21-Jan-25	250	Simple	CRISIL AA/Positive
INE601U08291	Non-convertible debentures	21-Jan-22	7.28%	20-Jan-25	35	Simple	CRISIL AA/Positive
INE601U08309	Non-convertible debentures	30-Aug-22	Zero Interest Coupon	28-Aug-26	700	Simple	CRISIL AA/Positive
INE909H08196	Subordinated debt	12-Sep-14	10.60%	12-Sep-24	25	Complex	CRISIL AA/Positive
INE909H08204	Subordinated debt	26-Sep-14	10.35%	26-Sep-24	60	Complex	CRISIL AA/Positive
INE909H08212	Subordinated debt	19-Dec-14	9.70%	19-Dec-24	150	Complex	CRISIL AA/Positive
NA	Subordinated debt^	NA	NA	NA	265.1	Complex	CRISIL AA/Positive
NA	Commercial paper	NA	NA	7-365days	8,000	Simple	CRISIL A1+
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	10426	NA	CRISIL AA/Positive
NA	Proposed Bank Guarantee	NA	NA	NA	1169	NA	CRISIL A1+
NA	Long Term Bank Facility>	NA	NA	NA	19088	NA	CRISIL AA/Positive
NA	Cash Credit & Working Capital Demand Loan!!$@^^%%#&!<$$**~&&	NA	NA	NA	6749	NA	CRISIL AA/Positive
NA	Bank Guarantee%	NA	NA	NA	68	NA	CRISIL A1+

^Yet to be issued

* Perpetual debt maturity date means call option date

Sanctioned bank facilities as December 31, 2023(net of repayments)

$Rs 3 crs is CC unsecured Limit

**Rs 400 Crs earmarked as CP

@Rs 200 Crs of Canara Bank's CC/WCDL limit includes BG subliit of Rs 1 Cr

%Includes Rs. 50 cr as Sub limit of CC/OD. Total WCDL/FCNR/FCDL limit is Rs. 425 cr, Interchangeable  with BG. FX limit is Rs 25 Crs, which is over and above the existing limit

<CC Limit of Rs 25 Crs is a sublimit of WCDL Limit is Rs 200

#Rs 200 Crs facility is CC/WCDL/OTSTL

&Rs 100 Crs is WCL facility

~CITI Bank's Rs 100 Crs is unsecured WCDL facility

&&Rs 1.20 Crores STL facility and Rs 80 Lakhs OD Facility is sublimit of Rs 2 Crore Unsecured Multi Optional Facility

>UBI & e Corporationlimit is LoC limit with STL as sublimit and Rs 150 Crs as BG sublimit of overall limit of Rs 500 Crs.

$$Out of Rs 700 Crs Limits, Rs 350 crs is WCDL & Rs. 350 Crs is WCL.

%%Rs 25 Crs is sublimit of WCDL/FCDL/FCNR limit of Rs 450 Crs. Rs 25 Crs is FX derivative limit, which is over and above the WCDL/FCNR/FCDL limit

!CC Limit is of Rs 40 Crs and WCDL Limit is of Rs 160 Crs

!!CC Limit of Rs 4 Crs is a sublimit of WCDL Limit is Rs 10

^^BG limit of Rs 150 Crs is a sublimit of CC/WCDL limit of Rs 500 Crs

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
TMF Holdings Ltd	Full	Holding
TMF business Services Limited	Full	Co-subsidiary