By Jindal Haria

Ind-Ra-Mumbai-6 February 2019: India Ratings and Research (Ind-Ra) has revised the Outlook on SV Creditline Limited’s (SVCL) bank loans to Stable from Negative while affirming the rating as follows:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Bank loans

-

-

-

INR1,000

IND BBB-/Stable

Rating affirmed; Outlook revised to Stable

The affirmation reflects SVCL’s moderate loss adjusted capital levels, stabilisation of asset quality deterioration and management’s nearly 20 years of experience. The Outlook revision reflects reasonable recognition of non-performing assets (NPAs) and corresponding credit costs already incurred, along with lower probability of capital erosion. The rating also factors in the company’s moderate funding profile and liquidity position.
 

KEY RATING DRIVERS

Collections on Improvement Trajectory: SVCL’s aggregate collection efficiency (monthly collection including overdues to monthly demand) between November 2016 (post demonetisation) and September 2018 increased to 93.1% from about 87.9% as of October 2017 mainly on account of write-offs (1HFY19: INR131.6 million, FY18: INR352.0 million, FY17: about INR45.4 million). The collection efficiency of portfolio originated between October 2017 and September 2018 was 98.6%. However, the improvement on legacy portfolio has been lower than peers’ as the company had written off lower proportion of loans. As of 1HFY19, of INR389.7 million NPAs (90+days past due (dpd)), 20%-25% 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.


SVCL has identified few branches in majorly hit states and is working closely with deeper bucket delinquent borrowers to get them back in the credit system. It was able to recover around INR19 million of written-off loans and INR67.0 million of deeper bucket loans in 1HFY19 and expects 20%-25% recovery from its current 90+dpd portfolio.


Additional Equity Infusion Required to Support Book Growth & Maintain Adequate Capital Buffers: As of December 2018, SVCL’s tier-1 capital improved to 14.99% (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 profit after tax of INR23.7 million in 1HFY19 (FY18: loss of INR517.4 million), due to write off of INR131.6 million (INR352.0 million) of microfinance loans. Credit cost increased to 7.14% in FY18 (FY17: 0.92%). 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. SVCL is raising INR300 million of compulsorily convertible preference shares to support capital buffers. Also, SVCL is attempting to tie-up INR1 billion of equity by 2QFY20.  


Post Write-Off Asset Quality Impact Likely to be Manageable: In 1HFY19, SVCL had assets with 0+dpd of 14.77% (FY18: 16.7%) and 90+dpd of 6.07% (7.9%) as a percentage of the total managed portfolio, of which 77% is provided for. Originations post December 2016 contribute to 91.4% of the book, of which 1.6% were classified as NPAs of the total book. However, assets with 0+dpd from the same portion were 8.0% of the total book and are 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 INR352.0 million worth loans in FY18 and INR131.6 million in September 2018. Ind-Ra does not expect the asset quality to reach pre-demonetisation levels rapidly and would remain a key monitorable.


Adequate Liquidity, Although Needs to be Monitored Closely: As of December 2018, SVCL had INR1.4 billion of cash on balance sheet (21% of total average assets), of which INR50% 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 36% of the total assets at end-December 2018. The company also has INR350 million of unutilised bank lines (no unutilised bank lines at end-September 2018). The company has resorted to borrowings from various non-banking finance companies over the last one year for funding support. Ind-Ra does not expect SVCL’s liquidity to deteriorate further, given the stabilisation of asset quality.    


RATING SENSITIVITIES

Positive: Substantial equity infusion to maintain sufficient capital buffers and growth capital in 2019, 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. Capital levels close to regulatory requirements at any point in time could immediately result in a negative rating movement.


COMPANY PROFILE

SVCL is a Delhi-based non-banking finance company - microfinance institution. It had a managed loan portfolio of INR8.2 billion as of September 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’s analysis

 

 


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

21 September 2018

16 November 2017

21 March 2016

Bank loans

Long-term

INR1,000

IND BBB-/Stable

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.

DISCLAIMER

ALL CREDIT RATINGS ASSIGNED BY INDIA RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.INDIARATINGS.CO.IN/RATING-DEFINITIONS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.INDIARATINGS.CO.IN. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. INDIA RATINGS’ CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE.

Analyst Names

  • Primary Analyst

    Jindal Haria

    Associate 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