By Jindal Haria

This announcement corrects the version published on 18 September 2018 that incorrectly stated the entity name. An amended version is as follows:

India Ratings and Research (Ind-Ra) has rated S V Creditline Limited’s (SVCL) additional bank loans as follows:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Bank loans

-

-

-

INR500

IND BBB-/Negative

Assigned

The Negative Outlook reflects SVCL’s lower capital buffers and gradual improvement in collections post demonetisation. The ratings, however, are supported by the entity’s adequate liquidity position for the short term and management’s experience of more than 20 years in the microfinance business.

KEY RATING DRIVERS

Collections on Improvement Trajectory: SVCL’s aggregate collection efficiency (monthly collection including overdues to monthly demand) between November 2016 (demonetisation period) and June 2018 increased to 92.5% from about 87.9% as of October 2017 (October 2017-June 2018: 99.1%) mainly on account of write-offs (FY17: about INR45.4 million, FY18: INR352.0 million, 1QFY19: nil). However, the improvement has been lower than peers’ as the company had written off lower proportion of loans. As of 1QFY19, of INR391.0 million of non-performing assets, 30%-35% are meeting partial payments and the company expects a marginal loss in the event of a default on this portion of the portfolio. Ind-Ra will continue monitoring the company’s collection performance. 

Additional Equity Infusion Required to Support Book Growth & Maintain Adequate Capital Buffers:
As of March 2018, SVCL’s tier-1 capital improved to 13.4% (capital to risk weighted asset ratio: 22.4%) from 8.15% (16.4%) in September 2017, mainly on account of fresh equity infusion of INR577.6 million through rights issue and compulsorily convertible preference shares in FY18. The moderate improvement in collections prevented substantial equity erosion. The company reported a PAT loss of INR517.4 million due to writing off of INR352.0 million of microfinance loans in FY18; credit cost increased to 7.14% in FY18 from 0.92% in FY17. SVCL’s current delinquency level remains high due to slow improvement in collections. In the agency’s view, the company will require additional equity infusion to support its book growth and maintain comfortable capital buffers. 

Post write off Asset Quality Impact Likely to be Manageable:
In 1QFY19, SVCL had assets with 0+ days past due (dpd) of 14.9% (1QFY18: 39.3%) and 90+dpd of 6.6% (9.6%) as a percentage of the total managed portfolio, of which 60% is provided for. Originations post December 2016 contributes to 91.4% of the book, of which 1.6% were classified as non-performing assets of the total book. However, assets with 0+dpd from the same portion were 8.0% of the total book and were higher than most peers. Some of this could be attributed to lower discipline among the borrowers post demonetisation. In addition, the company has written off INR 352.0 million worth loans in FY18. Ind-Ra does not expect the asset quality to reach pre-demonetisation levels rapidly, and in the absence of a further equity infusion, the pressure on asset quality would be a key monitorable. 

Adequate Liquidity, Although Needs to be Monitored Closely:
As of June 2018, SVCL had INR921.6 million of cash on balance sheet (14.3% of total average assets), of which INR598.9 million would be encumbered. The entity has adequate short-term (one year) liquidity cover, with the short-term assets excluding cash exceeding the short-term liabilities by almost 41% of the total assets. However, the company does not have material quantum of unutilised bank lines and has resorted to borrowings from various non-banking financial companies over the last one year for funding support. Hence, in Ind-Ra’s view, the company does not seem to have adequate liquidity for asset growth and hence its liquidity will be a key monitorable.


RATING SENSITIVITIES

Positive: Equity infusion maintaining sufficient growth capital and capital buffers in the medium term, adequate liquidity back-up arrangements and material improvement in 0+dpd portfolio in the near term could result in a positive rating action.

Negative:
Inability to maintain adequate capital buffers and back-up liquidity provisions, rising leverage and deterioration in 0+dpd in the near term could result in a negative rating action


COMPANY PROFILE

SVCL is a Delhi-based non-banking finance company - microfinance institution. It had a managed loan portfolio of INR7.9 billion as of June 2018. Its operations are primarily concentrated in northern and central India (Uttar Pradesh, Madhya Pradesh and Rajasthan). 

FINANCIAL SUMMARY
 

Particulars

FY18

FY17

Total assets (INR million)

6,595.8

6,896.7

Total equity (INR million)

1,054.9

1,017.3

Net profit (INR million)

-517.4

221.4

Return on average assets (%)

-7.7

3.2

Equity/assets (%)

16.0

14.8

Capital adequacy ratio (%)

22.37

22.42

Source: Company annual report, Ind-Ra

 

 


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

16 November 2017

21 March 2016

Bank loans

Long-term

INR1,000

IND BBB-/Negative

IND BBB-/Negative

IND BBB/Stable


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.
 

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

Headquartered in Mumbai, Ind-Ra has seven branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Pune. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

India Ratings is a 100% owned subsidiary of the Fitch Group.

For more information, visit www.indiaratings.co.in.

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Analyst Names

  • Primary Analyst

    Jindal Haria

    Director
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40001750

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121