KEY RATING DRIVERS
The ratings are factors in STFC’s dominance in the Indian used commercial vehicle (CV) financing market with limited meaningful organised competition in its niche segment. The company is focusing on buckets of median- to above-average yields, which is likely to reduce volatility in credit costs. The ratings factor in the company’s healthy capitalisation, reasonable operating metrics and average liquidity. The ratings however also factor in the company’s largely institutional funding, though its non-institutional funding has increased and it now has a sizeable proportion of retail deposits.
STFC has gained strong skill set through its long experience and has managed its credit costs within a moderate range despite operating in a weak credit profile customer category. The company seems to be consolidating its portfolio towards above-average yield bucket and simultaneously vacating low yield and very high yield segments which could lead to less volatile credit costs. At the same time, the company’s focus on low ticket lending seems to be strengthening. The build-up of regulatory pressure, changing dynamics of CV industry, higher contribution of rural markets in incremental growth, greater availability of lower vintage used vehicles together with 8% spread cap on the asset eligibility for securitisation are leading to this transition. Having said that, STFC faces higher competition in this segment as many non-banking financial companies are trying to expand in this space.
To read a detailed rating rationale, please click here.
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