Housing Development Finance Corporation Limited

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1 Housing Development Finance Corporation Limited Summary of rated instruments Instrument Previous Rated Amount (Rs. crore) August 21, 2018 Current Rated Amount (Rs. crore) Rating Action Non-convertible debentures programme - 35,000 (Stable); assigned Non-convertible debentures 143, , programme (Stable); reaffirmed Subordinated debt programme 5,500 5,500 (Stable); reaffirmed Issuer rating - - (Stable); reaffirmed Fixed deposit programme - - M (Stable); reaffirmed Bank lines 35,000 35,000 (Stable) / ; reaffirmed Commercial paper programme 75,000 75,000 ; reaffirmed Non-convertible debentures programme 49, (Stable); withdrawn Rating action ICRA has assigned the rating of (pronounced ICRA triple A) to the Rs. 35,000 crore non-convertible debenture programme of Housing Development Finance Corporation Limited (HDFC) 1. ICRA has also reaffirmed the rating of and (pronounced ICRA A one plus) on Rs. 35,000 crore bank lines of HDFC. ICRA has reaffirmed the rating of on Rs. 143, crore non-convertible debenture programme, Rs. 5,500 crore subordinated debt programme and issuer rating of HDFC. ICRA also has reaffirmed the rating of on Rs. 75,000 crore commercial paper programme and rating of M (pronounced M triple A) on fixed deposit programme of HDFC. The outlook on the long-term and medium-term ratings is Stable. ICRA has also withdrawn the rating outstanding of (Stable) on the company s Rs. 49, crore nonconvertible debenture programme. The withdrawal is at the request of the company since either the rated instruments have matured or were unutilized. Rationale The ratings factor in HDFC s strong franchise and its demonstrated ability to grow in the competitive mortgage finance market, its focus on prime-salaried customers within the home loan segment and its good asset quality indicators in the corporate loan segment. The rating also factors in HDFC s strong capitalisation (capital adequacy ratio of 16.3% with Tier I of 15.0% as on June 30, 2018), moderate gearing (5.4 times as on March 31, 2018) and good profitability indicators (return on equity of ~24% during FY2018). ICRA takes note of the strong competition in the housing finance space which might affect margins of HDFC. However, in ICRA s view, HDFC s focus on growing its book while maintaining healthy interest spreads, its competitive operating cost structure and the tight control on asset quality would continue to support its earnings and solvency profile going forward. 1 For complete rating scale and definitions, please refer to ICRA's website or other ICRA rating publications 1

2 Outlook: Stable In ICRA s opinion, HDFC will continue to report steady growth with good asset quality and healthy profitability indicators, given its stringent credit underwriting norms. The outlook may be revised to Negative in case there is significant deterioration in the company s asset quality or solvency indicators. Key rating drivers Credit strengths Strong franchise and market position HDFC is the largest housing finance company in India. ICRA takes into consideration the strong franchise of HDFC with extensive geographical presence and its demonstrated ability to grow while protecting its margins in the extremely competitive mortgage finance market. HDFC reported an overall growth of 21% in portfolio (net of loans sold) during FY2018 to Rs lakh crore as on March 31, Further, the loan book grew at annualised growth rate of ~14% during Q1FY2018 to Rs lakh crore. The individual loan segment on an AUM basis contributed 72% of the company s overall portfolio as on June 30, 2018 with the rest being accounted by nonindividual loans/icds, primarily construction finance loans to builders (13%), lease rental discounting (9%) and corporate loans (6%). Focus on prime salaried segments in the home loan segment In the housing finance business, the focus of HDFC has been on salaried segment which is perceived to be less risky when compared to self-employed segment. As on March 31, 2018, ~76% of individual loans in value terms were to salaried class (vis-a-vis ~77% as on March 31, 2017). Good asset quality indicators Given HDFC s focus on the prime-salaried segment, its overall asset quality indicators remained comfortable at 1.18% as on June 30, 2018 (1.12% as on June 30, 2017). The increase in GNPA is primarily on account of slippage of one corporate account. Consequently, the gross NPA have increased from 0.79% as on March 31, Gross NPAs in the individual loan segment remained lower at 0.66% vis-a-vis the non-individual loan segment at 2.32% as on June 30, Going ahead, the company is expected to maintain a comfortable assets quality owing to its focus on the prime-salaried segment. Additionally, the company adopted Ind-AS from June 30, 2018 onwards and identified additional stage 3 assets comprising (a) performing but identified as assets having some degree of stress; (b) non-performing assets of 3.7% against which provisions of 28% have been made therefore additional provisioning impact is expected to be limited. Well diversified borrowing mix - HDFC s funding profile is well diversified, supported by its superior credit profile. A majority of the company s funding is from the debt market borrowings (57% as on March 31, 2018), which has enabled it to maintain a competitive cost of funds (7.2% in FY2018). ICRA expects the company to continue to tap the debt markets in the near term, given the lower cost of funds. HDFC has so far raised Rs. 9,600 crore through masala bonds. These long-term borrowings have enabled HDFC to manage its asset liability maturity profile efficiently and consequently it has lower gaps in the medium-term buckets vis-a-vis peer housing finance companies (HFCs). However, like other HFCs, the company carries an interest rate risk on its portfolio given the relatively higher tenure of its fixed rate liabilities vis-a-vis assets. Stable profitability indicators maintained across cycles - HDFC s average yields declined during FY2018 to 9.4% from 10.2% during FY2017 with an easing of interest rates supported by a decline in its cost of funds, the company s interest spreads decreased marginally to 2.2% for FY2018 (2.4% for FY2017). Its operating expenses also remained low at 0.3% of average total assets in FY2018. Further, the company reported a Rs. 5,257 crore profit on account of proceeds from profit on public offering for HDFC Life in Q3FY2018. In Q4FY2018, the company reported a pre-tax gain of Rs. 265 crore from stake sale in HDFC Developers Limited and HDFC Realty Limited in March. Stable net interest margins (NIMs, 3.0% for FY2018), non-interest income (0.5% for FY2018), and operating expenses (0.3% for FY2018) led to a stable operating 2

3 profitability (3.2% for FY2017) for the company. The company created a one-time special provision of Rs. 1,575 crore in Q3FY18. HDFC reported a return on equity at 24.1% in FY2018 as compared with 20.2% in FY2017 and a return on assets at 2.3% in FY2018 as compared with 2.4% in FY2017. The company has adopted Ind-AS from June 30, 2018 onwards and reported a PAT of Rs. 2,190 crore. The overall impact of transition to IND-AS was (~Rs. 128 crore) for quarter ended June 30, Strong capitalisation profile HDFC is adequately capitalised with a capital adequacy ratio of 16.30% as on June 30, 2018 as compared to 19.2% as on March 31, 2018 and 14.5% as on March 31, The company s gearing stood at 5.37 times as on March 31, 2018 and 7.28 times as on March 31, HDFC raised equity capital of Rs 11,104 crore through private placement in January 2018 and Rs. 1,896 crore through QIP in March 2018, leading to strengthened capital adequacy indicators and comfortable gearing levels for the company. The company invested Rs. 8,500 crore in HDFC Bank through preferential issue in July In ICRA s opinion, the entity remains well capitalised and its leverage levels remain comfortable at present. With the strong operating performance likely to continue and slippages remaining low, HDFC s capitalisation is expected to remain comfortable over the medium term. Credit challenges Exposed to extremely competition in the prime salaried segment HDFC, like other housing finance companies, is exposed to competition in the housing finance segment, which has remained highly competitive marked by thin interest spreads and high risk of loan takeovers. In ICRA s view, HDFC s ability to grow its book while maintaining its profitability, asset quality and solvency profile will remain a key rating monitorable. To manage asset quality in the non-individual loan segment given the large ticket - As on June 30, 2018, 28% of the total credit portfolio was towards non-individual loan segment. While the non-individual segment is comparatively risky, the company has strong systems and processes to manage this business. Given the large ticket size and the high inherent risks associated with these exposures, the corporate mortgage loan book remains exposed to concentration risks. While the portfolio asset quality has been good (gross NPA of 1.18% as on June 30, 2018), the company s ability to maintain asset quality will be critical given the relatively high share of self-employed people in the retail portfolio and concentration risk in the higher ticket builder book segment. Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below. Links to applicable criteria: Rating Methodology for Housing Finance Companies About the company: Housing Development Finance Corporation Limited (HDFC) is India s premier housing finance entity in existence for over 40 years. With a presence in banking, insurance and asset management, the HDFC group is an important part of the Indian financial services sector. During FY2018, HDFC reported a total income of Rs 35,230 crore and had an asset base of Rs. 4,01,674 crore as compared to a total income of Rs. 33,160 crore and an asset base of Rs. 3,37,306 crore in FY2017. The company s Profit After Tax (PAT) stood at Rs. 12,164 crore (including exceptional items of Rs. 3,682 crore) during the year ended March 31, 2018 as compared with Rs. 7,443 crore during the year ended March 31, Further, during Q1 FY2018, HDFC reported a PAT of Rs. 2,190 crore under Ind-AS. 3

4 Key Financial Indicators under I-GP (Audited) FY 2017 FY 2018 Net interest income 9,509 10,888 Profit before tax 10,727 15,264 Profit after tax 7,443 12,164 Net advances 296, ,442 Total assets 337, ,674 % Tier % 17.3% % CRAR 14.5% 19.2% Gearing % Net profit/average total assets 2.4% 3.3% % Return on net worth 20.2% 24.1% % Gross NPAs 0.79% 1.11% Amount is Rs. crore Source: Company Data; ICRA research Status of non-cooperation with previous CRA: Not applicable Any other information: None 4

5 1 2 3 Rating history for last three years: Instrument Nonconvertible debentures Nonconvertible debentures Subordinate d debt 4 Bank Lines Commercial Paper Issuer Rating Fixed Deposits Nonconvertible debentures Type / Short Short Medi um Current Rating (FY2019) Amount Amount Outstandi Rated ng (Rs. (Rs. crore) crore) 35, , , ,500 5,500 35,000 35,000 Aug 2018 Jan 2018 Sep 2017 Jul 2017 (Stable) (Stable)/ Chronology of Rating History for the past 3 years FY2018 FY2017 FY2016 Feb 2017 Sep 2016 Aug 2016 May 2016 Mar (Stable)/ (Stable)/ 75,000 75, ,222.1 M (Stable); Withdrawn Complexity level of the rated instrument: (s table) M M A A A (Stable)/ A 1+ A 1+ Ir M A (Stable )/ Ir M (Stable )/ Ir M (Stable )/ Ir M A A A (Stable )/ A 1+ A 1+ Ir M A (Stable )/ Ir M ICRA has classified various instruments based on their complexity as "Simple", "Complex" and "Highly Complex". The classification of instruments according to their complexity levels is available on the website Aug 2015 A A - A 1+ Ir M A 5

6 Annexure-1: Instrument Details ISIN No Instrument Name Date of Issuance / Rate Maturity Date Amount Rated Current Rating and Outlook Sanction (Rs. crore) INE001A07DE3 Non-convertible debentures 12-Dec % 12-Dec INE001A07EA9 Non-convertible debentures 21-Jul % 21-Jul INE001A07EB7 Non-convertible debentures 6-Aug % 6-Aug INE001A07EC5 Non-convertible debentures 4-Sep % 4-Sep INE001A07EE1 Non-convertible debentures 9-Sep % 9-Sep INE001A07EG6 Non-convertible debentures 27-Oct % 27-Oct INE001A07EH4 Non-convertible debentures 4-Nov % 4-Nov INE001A07EI2 Non-convertible debentures 26-Nov % 26-Nov INE001A07EJ0 Non-convertible debentures 26-Nov % 26-Nov INE001A07EM4 Non-convertible debentures 23-Dec % 23-Dec INE001A07EN2 Non-convertible debentures 29-Dec % 29-Dec INE001A07EO0 Non-convertible debentures 2-Jan % 2-Jan INE001A07FG3 Non-convertible debentures 8-Apr % 8-Apr INE001A07FJ7 Non-convertible debentures 9-Apr % 9-Apr INE001A07FM1 Non-convertible debentures 20-May % 20-May INE001A07FR0 Non-convertible debentures 21-Jul % 21-Jul INE001A07FT6 Non-convertible debentures 18-Aug % 18-Aug INE001A07FV2 Non-convertible debentures 19-Oct % 19-Oct INE001A07FW0 Non-convertible debentures 26-Nov % 26-Nov INE001A07FZ3 Non-convertible debentures 23-Dec % 23-Dec INE001A07GD8 Non-convertible debentures 18-Jan % 18-Jan INE001A07GO5 Non-convertible debentures 13-Apr % 13-Apr INE001A07GP2 Non-convertible debentures 3-May % 3-May-21 1, INE001A07GV0 Non-convertible debentures 10-Jun % 10-Jun INE001A07HA2 Non-convertible debentures 20-Jul % 20-Jul INE001A07HE4 Non-convertible debentures 17-Aug % 17-Aug INE001A07HH7 Non-convertible debentures 23-Sep % 23-Sep INE001A07HJ3 Non-convertible debentures 11-Nov % 11-Nov INE001A07II3 Non-convertible debentures 9-May % 9-May INE001A07IO1 Non-convertible debentures 4-Jul % 4-Jul INE001A07KU4 Non-convertible debentures 21-Mar % 21-Mar INE001A07LW8 Non-convertible debentures 30-Oct-13 Zero 30-Oct INE001A07MG9 Non-convertible debentures 17-Jan % 17-Jan INE001A07MH7 Non-convertible debentures 20-Jan % 19-Jan INE001A07MS4 Non-convertible debentures 24-Jun % 24-Jun INE001A07MX4 Non-convertible debentures 13-Aug % 13-Aug INE001A07MY2 Non-convertible debentures 21-Aug % 21-Aug-19 1, INE001A07MZ9 Non-convertible debentures 26-Aug % 26-Aug INE001A07NB8 Non-convertible debentures 28-Aug % 28-Aug-24 1, INE001A07NG7 Non-convertible debentures 6-Jan % 6-Jan-20 1, INE001A07NH5 Non-convertible debentures 13-Jan % 13-Jan-20 1, INE001A07NI3 Non-convertible debentures 15-Jan-15 Zero 15-Jan-20 1, INE001A07NJ1 Non-convertible debentures 23-Jan % 23-Jan INE001A07NN3 Non-convertible debentures 25-Feb % 25-Feb INE001A07NP8 Non-convertible debentures 4-Mar % 4-Mar

7 INE001A07NQ6 Non-convertible debentures 11-Mar % 11-Sep INE001A07NU8 Non-convertible debentures 27-Apr % 27-Apr-20 1, INE001A07NW4 Non-convertible debentures 18-May % 18-May-20 1, INE001A07NZ7 Non-convertible debentures 31-Aug % 31-Aug-20 2, INE001A07OA8 Non-convertible debentures 18-Sep % 18-Sep-20 1, INE001A07OB6 Non-convertible debentures 28-Sep % 28-Sep INE001A07OD2 Non-convertible debentures 23-Oct % 23-Oct-18 1, INE001A07OG5 Non-convertible debentures 30-Nov % 30-Nov INE001A07OH3 Non-convertible debentures 8-Dec % 15-Mar-19 1, INE001A07OI1 Non-convertible debentures 8-Jan % 8-Feb INE001A07OK7 Non-convertible debentures 27-Jan % 27-Feb INE001A07OL5 Non-convertible debentures 28-Jan % 28-Feb INE001A07OM3 Non-convertible debentures 3-Feb % 14-Jun INE001A07ON1 Non-convertible debentures 22-Feb % 22-Mar INE001A07O09 Non-convertible debentures 4-Mar % 4-Mar-21 1, INE001A07OP6 Non-convertible debentures 9-Mar-16 Zero 9-Mar-20 1, INE001A07OQ4 Non-convertible debentures 11-Mar % 15-Apr INE001A07OR2 Non-convertible debentures 12-Apr % 12-Aug-19 1, INE001A07OS0 Non-convertible debentures 26-Apr % 26-Apr INE001A07OT8 Non-convertible debentures 4-May % 4-May INE001A07OU6 Non-convertible debentures 6-May % 6-Mar INE001A07OW2 Non-convertible debentures 10-May-16 Zero 10-May INE001A07OX0 Non-convertible debentures 13-May % 13-May-26 1, INE001A07OY8 Non-convertible debentures 18-May % 18-May-26 1, INE001A07OZ5 Non-convertible debentures 24-May % 24-Jul INE001A07PB3 Non-convertible debentures 1-Jun % 1-Jun INE001A07PC1 Non-convertible debentures 15-Jun % 15-Jun-26 1, INE001A07PD9 Non-convertible debentures 17-Jun % 11-Mar INE001A07PE7 Non-convertible debentures 20-Jun % 20-Mar INE001A07PF4 Non-convertible debentures 24-Jun % 24-Jun INE001A07PG2 Non-convertible debentures 28-Jun % 28-Jun INE001A07PH0 Non-convertible debentures 15-Jul % 15-Jul INE001A07PI8 Non-convertible debentures 27-Jul % 27-Jul INE001A07PJ6 Non-convertible debentures 29-Jul % 29-Jul INE001A07PL2 Non-convertible debentures 22-Aug % 22-Aug INE001A07PM0 Non-convertible debentures 23-Aug % 23-Sep-19 1, INE001A07PN8 Non-convertible debentures 24-Aug % 24-Aug-26 1, INE001A07PR9 Non-convertible debentures 4-Oct % 4-Dec INE001A07PS7 Non-convertible debentures 13-Oct % 12-Oct-18 1, INE001A07PT5 Non-convertible debentures 18-Oct % 18-Nov-19 1, INE001A07PU3 Non-convertible debentures 11-Nov % 11-Nov-19 2, INE001A07PV1 Non-convertible debentures 18-Nov % 18-Nov-26 2, INE001A07PW9 Non-convertible debentures 22-Nov % 22-Nov-18 1, INE001A07PX7 Non-convertible debentures 9-Dec-16 Zero 9-Mar-20 1, INE001A07PY5 Non-convertible debentures 12-Jan % 12-Feb INE001A07PZ2 Non-convertible debentures 18-Jan-17 Zero 18-Feb INE001A07QA3 Non-convertible debentures 25-Jan % 25-Jan-19 2, INE001A07QB1 Non-convertible debentures 30-Jan % 30-Mar-20 1,

8 INE001A07QD7 Non-convertible debentures 17-Mar % 17-Mar INE001A07QE5 Non-convertible debentures 20-Mar % 20-Mar-19 1, INE001A07QF2 Non-convertible debentures 24-Mar % 24-Mar-20 1, INE001A07QG0 Non-convertible debentures 27-Mar % 27-Mar-27 1, INE001A07QH8 Non-convertible debentures 13-Apr % 13-Apr-27 1, INE001A07QI6 Non-convertible debentures 18-Apr % 18-Jun-20 2, INE001A07QJ4 Non-convertible debentures 24-Apr % 24-Apr-27 1, INE001A07QK2 Non-convertible debentures 19-May % 19-May INE001A07QL0 Non-convertible debentures 22-May % 22-Jun-20 1, INE001A07QM8 Non-convertible debentures 29-May % 29-Jun INE001A07QN6 Non-convertible debentures 31-May % 5-Jun-19 1, INE001A07QP1 Non-convertible debentures 8-Jun % 26-Jun-20 2, INE001A07QQ9 Non-convertible debentures 13-Jun % 7-Jul-20 1, INE001A07QR7 Non-convertible debentures 16-Jun % 16-Sep-20 2, INE001A07QT3 Non-convertible debentures 20-Jun % 20-Jun INE001A07QU1 Non-convertible debentures 21-Jun % 25-Mar INE001A07QV9 Non-convertible debentures 23-Jun % 24-Sep INE001A07QW7 Non-convertible debentures 11-Jul % 11-Dec-18 3, INE001A07QX5 Non-convertible debentures 24-Jul % 24-Jul-19 3, INE001A07QY3 Non-convertible debentures 1-Aug % 1-Sep-20 2, INE001A07QZ0 Non-convertible debentures 28-Aug % 28-Dec-18 2, INE001A07RA1 Non-convertible debentures 6-Sep % 6-Sep-19 2, INE001A07RB9 Non-convertible debentures 18-Sep-17 Zero 18-Dec INE001A07RC7 Non-convertible debentures 17-Oct % 17-Nov-20 2, INE001A07RD5 Non-convertible debentures 20-Dec % 20-Feb-19 2, INE001A07RE3 Non-convertible debentures 19-Mar % 20-Mar-19 4,000 INE001A07RF0 Non-convertible debentures 21-Mar % 21-Jun-19 2,500 NA Non-convertible 35, debentures** NA Non-convertible 28, debentures* INE001A08338 Subordinated debt 4-Mar % 4-Mar INE001A08346 Subordinated debt 17-Feb % 17-Feb-21 1,000 INE001A08353 Subordinated debt 2-Mar % 2-Mar-22 1,000 INE001A08361 Subordinated debt 21-Oct % 21-Oct-24 2,000 INE001A08379 Subordinated debt 24-Feb % 24-Feb-25 1,000 NA Commercial Paper days 75,000 NA Bank Lines ,000 (Stable ) / NA Fixed Deposits M NA Issuer Rating *unutilised **assigned Source: Company Data 8

9 ANALYST CONTACTS Karthik Srinivasan Akshay Kumar Jain Supreeta Nijjar Sandeep Sharma RELATIONSHIP CONTACT L. Shivakumar MEDIA AND PUBLIC RELATIONS CONTACT Ms. Naznin Prodhani Tel: Helpline for business queries: (open Monday to Friday, from 9:30 am to 6 pm) info@icraindia.com About ICRA Limited: ICRA Limited was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment Information and Credit Rating Agency. Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company, with its shares listed on the Bombay Stock Exchange and the National Stock Exchange. The international Credit Rating Agency Moody s Investors Service is ICRA s largest shareholder. For more information, visit 9

10 ICRA Limited Corporate Office Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon Tel: Website: Registered Office 1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi Tel: Branches Mumbai + (91 22) /53/62/74/86/87 Chennai + (91 44) /9659/8080, / 3293/3294, Kolkata + (91 33) / / / , Bangalore + (91 80) /4049 Ahmedabad + (91 79) /5049/2008 Hyderabad + (91 40) /7251 Pune + (91 20) Copyright, 2018 ICRA Limited. All Rights Reserved. Contents may be used freely with due acknowledgement to ICRA. ICRA ratings should not be treated as recommendation to buy, sell or hold the rated debt instruments. ICRA ratings are subject to a process of surveillance, which may lead to revision in ratings. An ICRA rating is a symbolic indicator of ICRA s current opinion on the relative capability of the issuer concerned to timely service debts and obligations, with reference to the instrument rated. Please visit our website or contact any ICRA office for the latest information on ICRA ratings outstanding. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable, including the rated issuer. ICRA however has not conducted any audit of the rated issuer or of the information provided by it. While reasonable care has been taken to ensure that the information herein is true, such information is provided as is without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. Also, ICRA or any of its group companies may have provided services other than rating to the issuer rated. All information contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents 10

Muthoot Finance Limited

Muthoot Finance Limited December 04, 2018 Summary of rating action Instrument^^ Previous Rated (Rs. crore) Current Rated (Rs. crore) Rating Action Commercial Paper Programme 4,000.00 5,000.00* [ICRA]A1+;