| Tata Motors Finance Solutions Limited | ||||||||||
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| 1 crore = 10 million | ||||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on bank facilities and debt instruments of Tata Motors Finance Solutions Limited (TMFSL) at ‘CRISIL AA-/CRISIL A/Stable/CRISIL A1+’.
The ratings continue to reflect the expectation of strong support from TMFSL’s ultimate parent Tata Motors Ltd (TML; rated ‘CRISIL AA-/Stable/CRISIL A1+’) to TMF Holdings Ltd (TMFHL; rated ‘CRISIL AA-/Stable/CRISIL A1+’) and its subsidiaries: Tata Motors Finance Solutions Ltd (TMFSL; ‘CRISIL AA-/CRISIL A/Stable/CRISIL A1+’) and Tata Motors Finance Limited (TMFL; ‘CRISIL AA-/CRISIL A/Stable/CRISIL A1+’).
Amidst the challenging pandemic-induced economic environment over the past nine months, the delinquencies for the group have increased with reported gross NPAs and net NPAs at 19.2% and 16.3% respectively as on December 31, 2021. This compares against consolidated gross stage 3 assets under IndAS at 11.6% and net stage 3 assets of 8.81% as on December 31, 2021 (5.2% and 3.8% respectively as on March 31, 2021). The gross stage 3 and net stage 3 for TMFL on standalone basis has increased to 12.47% and 9.72% respectively (GNPA & NNPA of 20.8% & 17.9%) from 5.6% and 4.0% respectively as on March 31,2021. The gross stage 3 and net stage 3 for TMFSL on standalone basis also increased to 8.16% and 5.54% respectively (GNPA and NNPA of 13.3% and 10.6%) on December 31, 2021 from 3.5% and 3.0% respectively on March 31, 2021. The increase in delinquencies have been on account of lower collections following the Covid-19 waves. Further, the reported GNPAs witnessed an impact due to the RBI clarification released in November 2021, with respect to single day NPA recognition and upgradation of NPA accounts only post all dues being cleared. However, the recent revised RBI clarification to defer implementation of upgradation norms till September 30, 2022, will now give the group reasonable transition time to recalibrate processes, especially revamp their collection infrastructure and teams, and persuade borrowers to align with the new dispensation norms. We expect them to focus on near-term overdues to reduce delinquencies in the >60 days bucket and thus curb incremental slippages.
CRISIL Ratings believes the deferral of upgradation provision by the RBI gives more time to the group to focus on recoveries, make additional provisions, or even raise equity to keep net NPAs below the PCA watermark which comes into force from October 1, 2022 for NBFCs. CRISIL Ratings understands that the group is committed to bringing in additional equity capital to provide cushion against the asset side risk and maintain Net NPA and 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. |
Analytical Approach CRISIL’s ratings on the debt instruments and bank facilities of TMFSL continue to be based on the expectation of strong support from TML. This is because of TMFSL’s strong strategic importance to TML and the latter’s ownership through TMFHL. CRISIL has also combined the business and financial risk profiles of TMFHL and its subsidiaries, TMFL and TMFSL, given the integration of operations and commonality of management.
The ratings on the perpetual bonds additionally take into account the deeply subordinated nature of these instruments whereby TMFSL 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:
CRISIL’s ratings on the debt instruments and bank facilities of TMFSL are based upon the expectation of strong support from the ultimate parent TML. This is because of the high strategic importance of TMFSL to its parent and also the latter’s majority ownership in TMFSL through its wholly owned subsidiary, TMFHL.
Post the restructuring in fiscal 2017, TMFHL became the holding company for the financial services business of TML. TMFL undertakes financing of new vehicles and is the captive financier for TML’s vehicles. TMFSL provides financing for pre-owned vehicles and has strong operational linkages with TML’s pre-owned vehicles business and corporate lending, wherein it provides both short-term and long-term financing to dealers and suppliers of TML. The three companies are expected to receive significant business, financial and managerial support from TML.
In the past, TML has been infusing equity capital into TMFHL (including in its earlier form as TMFL, the operating company) 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 believes TML will continue to provide similar support through TMFHL, enabling the companies to maintain their capital adequacy above the minimum requirement.
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 TMFSL. CRISIL believes TML will continue to have majority ownership in TMFSL through the holding company structure. This, along with operational integration and a shared brand name, makes TML morally obligated to support TMFSL.
The TMFHL group is a leading vehicle financier in India. TMFL is among the top five CV financiers with assets under management (AUM) of Rs 35,532 crores as on December 31, 2021 (Rs 35,642 crore as on March 31, 2021). As on December 31, 2021. TMFSL had a standalone portfolio of Rs 8,741 crore (Rs 7,161 crore as on March 31, 2021). Consolidated AUM as of December 31, 2021 stands at Rs 44,273 Crs (March 31, 2021: Rs 42,803 Crs)
Weakness:
Amidst the challenging pandemic-induced economic environment over the past nine months, the delinquencies for the group have increased with reported gross NPAs and net NPAs at 19.2% and 16.3% respectively as on December 31, 2021. This compares against consolidated gross stage 3 assets under IndAS at 11.6% and net stage 3 assets of 8.8% as on December 31, 2021 (5.2% and 3.8% respectively as on March 31, 2021). The gross stage 3 and net stage 3 for TMFL on standalone basis increased to 12.5% and 9.7% respectively (GNPA and NNPA of 20.8% and 17.9%) as on December 31, 2021from 5.6% and 4.0% respectively as on March 31,2021. The stage 3 and net stage 3 for TMFSL on standalone basis also increased 8.16% and 5.54% respectively (GNPA & NNPA of 13.3% and 10.6%) as on December 31, 2021 from 3.5% and 3.0% respectively on March 31, 2021. The increase in delinquencies have been on account of lower collections following the Covid-19 waves. Further, the reported GNPAs witnessed an impact due to the RBI clarification released in November 2021, with respect to single day NPA recognition and upgradation of NPA accounts only post all dues being cleared. The recent revised RBI clarification to defer implementation of upgradation norms till September 30, 2022, will now give the group reasonable transition time to recalibrate processes, especially revamp their collection infrastructure and teams, and persuade borrowers to align with the new norms. We expect them to focus on near-term overdues to reduce delinquencies in the >60 days bucket and thus curb incremental slippages.
The deferral of upgradation provision by the RBI gives more time to focus on recoveries, make additional provisions, or even raise equity to keep net NPAs below the PCA watermark which comes into force from October 01, 2022 for NBFCs. CRISIL Ratings understands that the group is committed to bringing in additional equity capital to provide cushion against the asset side risk and maintain Net NPA and 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 CRISIL's analysis of TMFSL’s asset liability maturity (ALM) profile as on December 31, 2021, shows minor cumulative negative gaps in over 6 months bucket up to 1-year bucket with inclusion of committed lines of credit. Given the ability of the TMFHL group to raise funds and expectation of strong support from the ultimate parent TML, any negative gaps would be manageable.
On a consolidated basis, as on December 31, 2021, the group had repayments of Rs 10,686 crore for the three months till March 2022 (of which Rs 770 crore of CC/WCDL limits are expected to be rolled over). Against the same, the group. has the consolidated liquidity position which is supported by combined cash and liquid investments of Rs. 5507 crore and unutilised bank lines of Rs. 3825 crore and FDs/ G Sec/ T Bill Investments for liquidity backup of Rs. 1601 crore. TMFHL also has unutilised ICD lines of Rs 1,000 crore from TML on December 31, 2021. |
Outlook: Stable The rating outlook on TMFSL is closely linked to the rating outlook on TML. CRISIL 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 will continue to closely monitor any development that can significantly alter the extent of support by TML. Changes in the rating outlook or ratings on TML may lead to similar changes in the rating outlook or ratings on TMF Group. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company TMFSL, a non-deposit-taking systematically important, non-banking finance Company is a wholly owned subsidiary of TMFHL. As on March 31, 2015, TMFL had transferred its existing manufacturer-guaranteed (AUM of Rs 5,680 crore) and pre-owned vehicle financing (AUM of Rs 84 crore) businesses to TMFSL. End December 2021, the company's standalone AUM stood at Rs 8,741 crore. As on December 31, 2021, the total borrowings stood at Rs 6,861 crore, which was mix of bank borrowings and market borrowings.
For year ending December 31, 2021, TMFSL reported net profit of Rs 67 crore on total income (net of interest expenses) of Rs 405 crore (basis IND AS) as against a profit of Rs 194 crore on total income (net of interest expenses) of Rs 403 crore (basis IND AS) for year ended March 31, 2021. |
Key Financial Indicators: (Tata Motors Finance Solutions Limited-standalone)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
#Sanctioned bank facilities as on December 31, 2021(net of repayments) *Interchangeable with short-term facilities %CITI Bank's limit of Rs 75 Crores is unsecured WCDL Limit, not inter-changeable with Cash credit. @Bank of India's Rs 250 crore and HDFC’s Rs 350 crores is only WCDL, not interchangeable with Cash credit $IDFC’s limit of Rs 450 Crs is WCDL/FCNR/FCDL limit, out of which Rs 25 Crs is CC sublimit. Further, Rs 25 Crs is FX limit, which is over above the existing limit. $$ ECB of USD 15 Mn from ICICI UK is fully hedged. ^Yet to be issued |
Annexure – List of entities consolidated
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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#Sanctioned bank facilities as on December 31, 2021(net of repayments)
*Interchangeable with short-term facilities
%CITI Bank's limit of Rs 75 Crores is unsecured WCDL Limit, not inter-changeable with Cash credit.
@Bank of India's Rs 250 crore and HDFC’s Rs 350 crores is only WCDL, not interchangeable with Cash credit
$IDFC’s limit of Rs 450 Crs is WCDL/FCNR/FCDL limit, out of which Rs 25 Crs is CC sublimit. Further, Rs 25 Crs is FX limit, which is over above the existing limit.
$$ ECB of USD 15 Mn from ICICI UK is fully hedged.
This Annexure has been updated on 03-Mar-22 in line with the lender-wise facility details as on 31-Aug-21 received from the rated entity.
Criteria Details
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