Outlook on the long-term rating revised to negative from stable
(in Rs. crore)
*Instrument details are provided in Annexure-1
^ Facility details as on June 30, 2017
ICRA has reaffirmed the long-term rating outstanding on the Rs. 1,300.00 crore long term bank facilities, Rs. 3,716.00 crore non-convertible debenture (NCD) programme and Rs. 751.00 crore subordinated debt programme of Janalakshmi Financial Services Limited(JFSL)at [ICRA]A (pronounced ICRA A). The outlook on the long term rating has been revised to negative from stable. ICRA has revisedthe short-term rating outstanding on the Rs. 900.00 crore commercial paper programme of JFSL to [ICRA]A1 (pronounced ICRA A one) from [ICRA]A1+ (pronounced ICRA A one plus).
The revision in the rating outlook factors in the continued weakness in JFSL’s collection efficiency leading to a steady increase in delinquencies in the harder buckets, which is expected to result in higher than anticipated credit costs in the near to medium term. The revision in short-term rating factors in the moderation in liquidity cushion and the revision in ICRA’s long-term rating outlook. ICRA takes note of the steady moderation in the company’s on-book liquidity buffer over the recent past, which is likely to impact the company’s b business and financial risk profile as collections remain moderate and incremental disbursements have reduced. While the company is selective in its incremental disbursements in view of the asset quality pressures, this could impact its business risk profile and further stress incremental collections. ICRA will closely monitor the company’s proposed capital raising of Rs. 1,500 crore, that is expected to be completed in August 2017.
JFSL’s overall collectionsdropped to 76% in June 2017 from 79% in May 2017 and 77% average during the six month ended May 2017. With stagnant collection levels, the company’s deepdelinquency bucket(180+dpd) increased sharply to 12.9% as on June 30, 2017(0.7% as on April 30, 2017) even as those in the softer delinquency bucket(30+ dpd) stabilised over the past two months. Given the high over dues and the expected increase in credit costs, the company’s profitability and capital structure are likely to be adversely impacted in the near term. However, the impact on capitalisation may be cushioned to an extent, by the expected capital raise of about Rs.1,500 crore in August 2017. ICRA also notes that JFSL’s on-book liquidity has moderated, with cash and liquid assets being at Rs.1,033 crore as on July 2017, vis-a-visRs.1,800 crore as on April 30, 2017 and Rs.2,548 crore as on March 31, 2017. With the expected transition of operations to a small finance bank (SFB)in Q3FY2018, the company would need to maintain higher liquidity levels to comply with the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements. Going forward, ICRA would continue to monitor the company’s liquidity buffer, the near-term collection performance and the timelines of capital infusion as these would remain the key rating sensitivities.
The reaffirmation of the long term rating continues to factor in JFSL’s geographically diversified portfolio, strong management team and board composition, and adequate systems and monitoring processes. The ratings continue to factor in the monocline nature of JFSL’s business, its marginal borrower profile, high inherent operational risk, and lack of diversity in earnings. ICRA notes that conversion to an SFB would address some of these issues including greater diversity of earnings and reduced political risk with better regulatory supervision and liquidity.
Key rating drivers
Analytical approach: The rating takes into account the standalone financial and business performance of the rated entity.
Links to applicable criteria
ICRA’s Credit Rating Methodology for Non-Banking Finance Companies
ICRA Rating Methodology for Banks
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