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1 CARE Ratings Limited
Press Release
Bharat Financial Inclusion Limited
July 13, 2017 Ratings
Facilities Amount
(Rs. crore) Ratings
1 Remarks
Long term / Short term Bank Facilities
6000 (Enhanced from Rs.5500
crore)
CARE A+; Stable / CARE A1+ (Single A Plus; Outlook: Stable / A
One Plus)
Reaffirmed
Non-Convertible Debentures
400 CARE A+; Stable
(Single A Plus; Outlook: Stable) Reaffirmed
Short term Debt 200 CARE A1+
(A One Plus) Reaffirmed
Total Facilities 6600
(Rupees Six Thousand Six Hundred crore only)
Details of instruments/facilities in Annexure-1 Detailed Rationale & Key Rating Drivers The ratings take into consideration long track record of operations in microfinance industry and its market position as one of the leading microfinance company with pan India distribution network, experienced management, comfortable capitalization level, diversified resources profile, comfortable liquidity profile and geographically diverse loan portfolio. The ratings also factor moderation in profitability and asset quality parameters post demonetization in FY17 (refers to the period April 01 to March 31). The ratings continue to be constrained by the susceptibility of the business to socio-political intervention, operational risks due to high proportion of cash transactions and intense competition in the microfinance industry. The ability of the company to maintain a healthy capital adequacy level, asset quality and profitability are the key rating sensitivities. Detailed description of the key rating drivers Key Rating Strengths Leading Microfinance Company in the country with pan India distribution network BFIL is one of the leading microfinance companies of country with operations in 16 states covering 53.2 lakh active borrowers (outside the states of AP and Telangana) with Rs.9150 crore (as against Rs.7688 crore as on March 31, 2016) as Asset under Management (AUM) as on March 31, 2017. However, the company faces increasing competition from regional players and small finance banks (SFBs). Experienced management team and board Mr. P.H. Ravikumar is the non-executive chairman of the company. He is a seasoned commercial banker with over four decades of experience in financial services sector. The company’s board also includes other well experienced industry experts as independent directors. The management team of BFIL is headed by Mr. M.R. Rao (MD and CEO) having over two and a half decades of experience in the field of retail financial services and over 10 years in microfinance. He is ably supported by the management team having strong experience in the field of microfinance and other financial services. Diversified geographical presence BFIL has a presence across 16 states and the AUM is well diversified. The state which has the highest contribution to AUM is Orissa. Orissa accounted for 18% of the AUM, followed by Bihar at 15%, West Bengal at 13%, Karnataka at 12% and Maharashtra at 11% as on March 31, 2017. Outstanding on book loan exposure in top state and top three states as a percent of tangible networth stood at 58% and 146%, respectively as on March 31, 2017. During FY17, BFIL aggressively expanded into Bihar and West Bengal region. Diversified resource profile BFIL has diversified funding profile with over 30 banks and FIs as on March 31, 2017. During FY17, the company received loan sanctions of Rs.8022 crore from various banks and FIs (FY16: Rs.8309 crore). The outstanding market borrowing
1Complete definition of the ratings assigned are available at www.careratings.com and other CARE publications
2 CARE Ratings Limited
Press Release
stood at Rs.1107 crore as on March 31, 2017 with NCD outstanding at Rs.400 crore and CP outstanding at Rs.707 crore. As on March 31, 2017, company’s bank borrowing vis-à-vis market borrowing stood at 84% and 16%, respectively. The company is eligible for PSL on account of which it is able to securitize its portfolio loans and in turn avail benefits of concessional borrowing rates. During FY17, the company availed Rs.991 crore through securitization of portfolio (P.Y.:Rs.2139 crore) and Rs.739 crore through direct assignment (P.Y.: Rs.481 crore). Strong growth in business BFIL witnessed a compounded annual growth rate of 61% and 43% in its outstanding loan portfolio and AUM over the last three years. During FY17, the company’s outstanding loan portfolio and AUM grew by 44% and 19% y-o-y driven by strong growth in Bihar and West Bengal. Although the AUM growth of 19% is quite robust, it is below company’s targeted growth of 43% for FY17. The same is on account of lower than targeted disbursements post November 2016 due to demonetization. The company projects to increase its outstanding AUM from Rs.9150 crore during FY17 to Rs.13500 crore during FY18. Comfortable capitalization levels The company’s capitalization levels stood comfortable as on March 31, 2017 with CAR and Tier I CAR ratio at 33.50% (FY16: 23.07%) and 33.04% (FY16: 23.07%), respectively. The improvement in company’s capitalization is on account of capital infusion of Rs.750 crore via QIP in September 2016. Gearing levels of company reduced to 2.92 times as on March 31, 2017 (March 31, 2016: 3.72 times). The company stands very well capitalized to achieve its growth targets for FY18. Comfortable Liquidity Profile The liquidity profile is comfortable with positive cumulative mismatches across all time buckets on account of the short tenor MFI loans (up to 1 year) as against a short to medium term bank borrowing profile (1-3 years). As on March 31, 2017, BFIL had cash balances of Rs.2871 crore as against Rs.1942 crore as on March 31, 2016. Due to cash collection and disbursements on a daily basis, BFIL usually has high cash balances. Also, incremental securitization of portfolio results into higher cash and cash equivalents. As intimated by the management, the company will maintain minimum 10% of AUM in cash and cash equivalents. Key Rating Weaknesses Moderation in profitability parameters The company’s interest income grew by 29% in FY17 on the back of high loan portfolio growth. The company’s net interest margins (NIMs), however, reduced to 9.83% in FY17 from 10.72% in FY16 on account of lower yield on portfolio but it still continues to remain robust. The company has decreased its interest rates from December 2015, due to reduction in cost of borrowing and charges a standard 19.75% interest on all the loans given for income generation purposes. The company’s income from securitization grew by 56% in FY17 and stood at Rs.172 crore. Overall, the company reported 31% rise in total income which stood at Rs.1728 crore in FY17. The company’s operating expenses to average total assets ratio improved to 6.30% in FY17 from 6.82% in FY16 while cost to income ratio remained stable at 50.00% (P.Y.: 48.33%). The company has been increasingly making efforts to improve operating efficiency and initiated aadhar card linked cashless disbursements during Q4FY17 which has improved company’s turnaround time (TAT) and enhanced operational efficiency with paperless documentation and cashless transactions. The company’s provisions and write off increased substantially during FY17 on account of higher delinquencies post demonetization. The company follows stringent provisioning policy with provision of 50% of outstanding principal for sub-standard assets (RBI norms: 50% provisions of installments overdue for sub-standard assets) and recognizes sub-standard assets post 8 week overdue (RBI norms: recognition of sub-standard assets post 90 days overdue). The provisions and write off in FY17 increased to Rs.359.35 crore as against Rs.38.64 crore in FY16. Credit cost (provisions and write to average total assets) increased from 0.66% in FY16 to 4.09% in FY17. Consequently, company’s profitability moderated in FY17 with reported PBT of Rs.193 crore as against PBT of Rs.394 crore in FY16. On account of MAT credit, the company’s PAT for FY17 stood at Rs.290 crore (FY16: 303 crore). Return on total assets (RoTA) for FY17 stood at 3.30% in FY17 (FY16: 5.12%). Deterioration in asset quality parameters post demonetization The company reported GNPA and NNPA ratio of 0.10% and 0.04% as on September 30, 2016. However, asset quality parameters of the company deteriorated significantly post demonetization as majority company’s collections are in cash. The company had managed to keep the collections well above 99% over the years, however, post demonetization there has been significant moderation in monthly collections efficiency ratios. The company reported collection ratios (dues for the period as a percentage of collections for the period) of 94.6%, 92.5%, 94.2%, 95.5% and 96.6% from November 2016 to March 2017, respectively. Collection ratios post demonetization in on an increasing trend and going forward company’s ability to improve its collection efficiency will be a key rating monitorable.
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The company reported GNPA and NNPA ratio at 5.97% and 2.70%, respectively as on March 31, 2017. The NNPA to Tangible networth ratio deteriorated to 7.59% as on March 31, 2017 (March 31, 2016: 0.14%). The company reports NPAs on 8 weeks overdue as against 90 days overdue as per RBI norms. Susceptibility of business to event based risks The company’s business operations are highly susceptible to event based risks like socio-political intervention, religious risks, regulatory risk and natural calamities. In the past, the company had to write off majority of its Andhra Pradesh portfolio post enactment of Andhra Pradesh Micro Finance Institution (Regulation of Money Lending) Ordinance in October 2010. The company stopped its operations in AP post the crisis and has fully provided for credit losses from AP portfolio by Q2FY13. Currently, post demonetization, collection efficiency has substantially declined in MFI entities, which needs to be monitored. Analytical approach: Standalone Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE’s Policy on Default Recognition Financial ratios – Financial sector Criteria for Non-Banking Financial Companies About the Company Bharat Financial Inclusion Ltd. (BFIL - formerly known as SKS Microfinance Ltd.) was incorporated on September 22, 2003, under the companies act, 1956. The company obtained certificate of registration from RBI on January 20, 2005 as NBFC ND. In September 2005, Company acquired business operations, assets and loan portfolio from SKS society (NGO) that was engaged in microfinance activities since 1997. The company obtained fresh certificate of registration from RBI in June, 2009 for carrying on business as NBFC ND. The company got listed on BSE and NSE in August, 2010. Furthermore, it got registered as NBFC – MFI in November 2013. The company offers loans and advances to low income women borrowers through joint liability group mechanism for business/income generation activities. As on March 31, 2017, BFIL operates in 16 states with 1399 branches (incl. AP and Telangana where the portfolio is nil) with outstanding portfolio (AUM) of Rs.9150 crore (as against Rs.7688 crore in FY16) including managed portfolio of Rs.1974 crore (Rs.2711 crore in FY16). As on March 31, 2017, rural area accounted for 79% of company’s customer base. As on March 31, 2017, overall employee strength of the company stood at 14755 (P.Y.: 11991). Status of non-cooperation with previous CRA: Not Applicable
Any other information: Not Applicable
Rating History for last three years: Please refer Annexure-2
Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.
Analyst Contact: Name: Mr Ravi Kumar Tel: 022-67543421 Mobile: + 91-9004607603 Email: [email protected]
**For detailed Rationale Report and subscription information, please contact us at www.careratings.com
About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices.
Disclaimer CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank
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Press Release
facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors.
Annexure-1: Details of Instruments/Facilities
Name of the Instrument
Date of Issuance
Coupon Rate
Maturity Date
Size of the Issue (Rs. crore)
Rating assigned along with Rating
Outlook
Fund-based - LT-Term loan - - 31-Dec-20 5637.36 CARE A+; Stable
Fund-based -ST-Term loan - - 7-364 days 351.75 CARE A1+
Fund-based - LT/ ST-Term loan (Proposed)
- - - 10.89 CARE A+; Stable /
CARE A1+
Debentures-Non Convertible Debentures
30-Mar-15 11.48% 30-Mar-18 100.00 CARE A+; Stable
Debentures-Non Convertible Debentures
30-Mar-15 11.48% 30-Mar-18 100.00 CARE A+; Stable
Debentures-Non Convertible Debentures
15-May-15 11.95% 15-May-18 100.00 CARE A+; Stable
Debentures-Non Convertible Debentures
15-May-15 11.95% 15-May-18 100.00 CARE A+; Stable
Short Term Instruments-CP/NCD
- - 7-364 days 200.00 CARE A1+
Annexure-2: Rating History of last three years
Sr. No.
Name of the Instrument/Bank
Facilities
Current Ratings Rating history
Type
Amount Outstanding (Rs. crore)
Rating
Date(s) & Rating(s)
assigned in 2017-2018
Date(s) & Rating(s)
assigned in 2016-2017
Date(s) & Rating(s)
assigned in 2015-2016
Date(s) & Rating(s)
assigned in 2014-2015
1. Fund-based - LT/ ST-Term loan
LT/ST 6000.00 CARE A+; Stable / CARE A1+
1)CARE A+; Stable / CARE A1+ (17-Apr-17)
1)CARE A+ / CARE A1+ (26-Sep-16) 2)CARE A+ / CARE A1+ (28-Jul-16) 3)CARE A+ / CARE A1+ (23-Jun-16)
1)CARE A+ / CARE A1+ (06-Nov-15) 2)CARE A+ / CARE A1+ (14-Jul-15) 3)CARE A+ / CARE A1+ (05-May-15) 4)CARE A+ / CARE A1+ (06-Apr-15)
1)CARE A+ / CARE A1+ (23-Mar-15) 2)CARE A+ / CARE A1+ (10-Oct-14) 3)CARE A+ / CARE A1+ (03-Jul-14)
2. Short Term Instruments-CP/NCD
ST 200.00 CARE A1+
1)CARE A1+ (17-Apr-17)
1)CARE A1+ (23-Jun-16)
1)CARE A1+ (14-Jul-15)
1)CARE A1+ (22-Dec-14) 2)CARE A1+ (10-Jul-14)
3. Debentures-Non Convertible Debentures
LT 400.00 CARE A+; Stable
1)CARE A+; Stable (17-Apr-17)
1)CARE A+ (23-Jun-16)
1)CARE A+ (14-Jul-15) 2)CARE A+ (05-May-15) 3)CARE A+ (06-Apr-15)
-
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CIN - L67190MH1993PLC071691
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