Tag: Upgrade

Moody’s upgrades Yes Bank’s ratings, changes outlook to positive

Banking & Finance

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Moody’s Investors Service has upgraded Yes Bank’s ratings and changed its outlook to positive, reflecting its expectations of a further improvement in the lender’s credit profile due to clean-up of legacy stressed assets and improvements to its capital and profitability.

The rating agency has upgraded Yes Bank’s foreign currency issuer rating and long-term foreign and local currency bank deposit ratings to B2 from B3, it said on Wednesday.

Also see: Yes Bank launches co-branded card with BankBazaar.com

Further, it has also upgraded Yes Bank’s Baseline Credit Assessment (BCA) and Adjusted BCA to B3 from Caa2 and has changed the outlook on the bank’s ratings where applicable to positive from stable.

Liquidity improves

“Moody’s has upgraded Yes Bank’s issuer rating to B2 from B3 because its funding and liquidity have substantially improved in the past year, which have strengthened depositor and credit confidence in the bank,” it said, adding that the rating action also reflects the fact that despite the significant economic challenges since the onset of the pandemic, Yes Bank’s asset quality has deteriorated only modestly while its capital has remained stable.

Asset quality remains weak

It, however, noted that the private sector lender’s asset quality remains weak and continues to pose risks to its profitability and capital.

Given the positive outlook, Moody’s could upgrade Yes Bank’s ratings if the bank’s asset quality and/or capital materially improve. However, the agency could downgrade the bank’s ratings and BCA if its capital deteriorates significantly because of a strain on its asset quality, or if its funding and liquidity deteriorate.

Also see: Moody’s upgrades outlook for Indian banking system

For the quarter ended September 30, Yes Bank had reported a 74.3 per cent jump in its standalone net profit to ₹225.5 crore from a year ago.

Gross NPAs was at 14.97 per cent of gross advances as on September 30, 2021 versus 16.9 per cent a year ago.

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Namdev Finvest eyes eight-fold AUM growth by March 2024

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Namdev Finvest Pvt Ltd (NFPL) is eyeing an eight-fold increase in its assets under management (AUM), to touch at least ₹2,000 crore, by March-end 2024 even as it expects the recent $4.7-million fund raise to lead to a rating upgrade.

Once the Jaipur-based non-banking finance company (NBFC) — which is focused on the micro, small and medium enterprises (MSME) sector — attains the targeted AUM, it will be better placed for co-lending tie-ups with large banks, its top officials said. Its current AUM value is about ₹270 crore.

Jitendra Tanwar, MD and CEO, said the company’s USP is providing funding on time to existing as well as new entrepreneurs in the MSME segment.

NBFCs: No need to press the panic button yet

“Our turnaround time is 7-10 days. So, within 10 days we disburse money to the customer.

“We also educate our customers about the importance of using banking facilities, as far as possible, avoid cash transactions, and route payments through digital payment apps,” he said.

Tanwar said NFPL encourages those at the bottom of the pyramid to start their business and grow it.

According to CARE Ratings, the NBFC’s loan portfolio is moderately diversified with the ‘loan against property’ portfolio and SME loans (secured) comprising 80 per cent, two-wheeler loans 16 per cent, new or used four-wheeler loans 3 per cent and gold loans 1 per cent.

NBFC regulation needs to be strengthened

NFPL received private equity investment (A series) of around $4.7 million in September 2021 from Belgium-based Incofin Investment Management, via its India Progress Fund.

The company, which has operations in Rajasthan, Punjab, Delhi and Gujarat, expects CARE Ratings to take into account the capital infusion when it updates its rating, which is currently at ‘BBB-’. An ‘A’ rating will help NFPL tap the debt capital market, said a company official.

On the importance of reaching the ₹2,000-crore milestone, PH Ravikumar, Director, said that co-lending becomes meaningful when there is a minimum monthly loan origination.

“When it comes to microfinance or MSMEs, the ability of specialised NBFCs like Namdev Finvest to spot, manage and contain the risk is much better than that of large banks. NBFCs have the skill sets, local focus, and local intelligence,” he said.

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S&P upgrades Manappuram Finance’s credit rating to ‘BB-’

Banking & Finance

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S&P Global Ratings has upgraded its long-term issuer credit rating for Manappuram Finance Ltd to ‘BB-’ from ‘B+’ as it expects the company to perform better than its non-banking finance company (NBFC) peers over the next 12 months.

This would be reflected in the company’s lower credit costs, above-average profitability, and strong capitalisation, the credit rating agency said in a statement.

S&P said the outlook is stable, reflecting its view that the company will largely maintain its financial profile over the next 12 months, supported by improved economic conditions in India.

The agency also affirmed the ‘B’ short-term issuer credit rating for the NBFC.

“Manappuram’s gold-based lending model with a three-month tenor allows it to recognise asset quality stress early,” the agency said.

S&P underscored that it could downgrade Manappuram if the company’s credit costs increase substantially, particularly in microfinance loans.

“We see limited rating upside for Manappuram over the next 12 months. We would upgrade the company if we believe its funding profile has become more stable,” it said.

Gold auctions

S&P observed that gold prices had fallen significantly till April 2021, from a peak in August 2020.

What’s next for gold loans after the pandemic?

“The stress in the economy owing to the second wave of Covid-19 infections during April-June 2021 and the decline in gold prices led to increased auctions of higher loan-to-value (LTV) loans in the first quarter of fiscal 2022 (ending March 31, 2022).

“The company’s gold auctions are likely to gradually return to their normal level as economic conditions improve,” S&P said.

The rise in auctions have, in part, lowered Manappuram’s average LTV ratio to about 65 per cent as of June 30, 2021, from about 71 per cent as of end-March 2021, providing the company some buffer to absorb price fluctuations, S&P said.

Banks may set up central repository to tackle gold loan frauds

The agency observed that gold price movements play an important role in the cushion available to lenders like Manappuram, which is predominantly in the collateral-based gold lending business.

Gold loans account for close to 70 per cent of the company’s total loans, with microfinance loans accounting for about 25 per cent, and vehicle finance and affordable housing contributing much of the rest.

Non-gold portfolio

S&P noted that stress will likely remain high in Manappuram’s non-gold portfolio, especially in the microfinance business.

“The asset quality of the non-gold loan portfolio has deteriorated sharply over the past two years.

“However, billing and collection efficiency are increasing close to pre-Covid-19 levels, hinting at improving asset quality trends,” the agency said.

Also, the company has pre-provisioned for the microfinance business. Therefore, S&P believes any residual impact can be largely absorbed by the company’s earnings.

The agency has forecast that Manappuram’s risk-adjusted capital ratio will stay above 30 per cent over the next 12 months.

“The company’s core earnings are likely to remain at more than 5 per cent of its average managed assets during this period. This ratio is one of the highest among rated peers.

“Manappuram’s funding profile is also improving with a shift toward longer tenor debt. However, the company still has material exposure to short-term wholesale funding,” S&P said.

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Indiabulls Housing Finance expects rating upgrade

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Indiabulls Housing Finance Ltd (IBHFL) said its next target on the ratings’ front is to get an upgrade to ‘AA+’ from its current rating of ‘AA’ (stable outlook) to make the most of the macro-opportunity and to grow profitability.

In its annual report, IBHFL referred to rating agency Crisil revising its rating outlook to ‘AA’ (stable outlook) on March 31, 2021 from ‘AA’ (negative outlook).

This came on the back of the company’s success in raising equity capital during the current tough global macro-economic situation, it added.

According to Crisil, instruments with ‘AA’ rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

Further,“+” or “-” suffix to a rating reflects comparative standing within a rating category.

As per the company’s past experiences, in times of macro-economic stress, whenever it has done an equity capital raise, even when capital adequacy was high – the company’s ratings were either upgraded or the rating outlook changed positively within a short period, the report said.

Capital raise

“The company believes that a capital raise aggregating up to $275 million…[approximately 12.5 per cent post issue diluted share capital of the company, assuming full conversion of existing Foreign Currency Convertible Bonds/FCCBs] would set its ratings on an upward trajectory and help it get its rating upgrade to AA+ much sooner than would be the case otherwise,” the report said.

IBHFL is seeking shareholders approval for issuance of securities of the company through Qualified Institutions Placement (QIP) and/or FCCBs and/or any other permissible modes aggregating up to $275 million or its equivalent in Indian rupees or in any other currency(ies).

In FY 2020-21, the company raised a total of ₹3,773 crores of regulatory equity capital + quasi-equity capital: ₹683 crore QIP issuance, ₹1,103 crore of FCCB issuance, and also accrued ₹1,987 crore by selling bulk of its investment in OakNorth Bank.

The annual report said an upgrade to ‘AA+’ rating opens up large pools of capital from institutions/companies such as insurance companies and pension funds, which as per their investment guidelines can’t invest meaningfully in papers rated below AA+.

Moreover, insurance companies and pension funds have a longer investment horizon, which improves liability term matching with IBHFL’s long maturity assets and thus bodes well for its Asset-Liability Management, it added.

Cost of funds reduction

The company estimated that an upgrade to ‘AA+’ will reduce its cost of funds by about 50 basis points. One basis point is equal to one-hundredth of a percentage point.

“Based on our present borrowing level, the reduction in cost of funds and the increased equity component will translate to a gain of about ₹325 crore at the PBT (profit before tax) level, which is about 20 per cent of FY2020-21 PBT.

“The RoA (return on assets) will also rise substantially and, despite the approximately 12.5 per cent dilution, the RoEs (return on equity) will rise appreciably,” the report said.

As part of IBHFL’s asset-light growth model, it has entered into co-lending agreement with HDFC, Bank of Baroda and Central Bank of India for sourcing home loans and with RBL Bank and Central Bank of India for sourcing secured micro, small and medium enterprise loans.

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