Rationale

 The ratings for GIC Housing Finance Limited (GICHF) are underpinned by its strong promoter profile. As on December 31, 2020, General Insurance Corporation of India (GIC-Re) and its erstwhile subsidiaries (The New India Assurance Company Limited, United India Insurance Company Limited, The Oriental Insurance Company Limited and National Insurance Company Limited) had a 42.41% stake in the company. ICRA expects GICHF to continue to receive managerial, operational and financial support from the promoters, as and when required, given the ownership, the strong board representation comprising nominee directors from each promoter group company and, and the shared brand name. ICRA has taken note of the expected deterioration in the asset quality indicators and the consequent weakening of the solvency and profitability metrics for the company for the period ending March 31, 2021. While the company reported gross non-performing assets (NPAs) of 5.49% as on December 31, 2020 (5.39% as on March 31, 2020) due to the abeyance granted by the Honourable Supreme Court, the share of the 90+ days past due (dpd) portfolio increased significantly to 9.11% as on December 31, 2020 from 5.39% as on March 31, 2020, reflecting the asset quality pressures. This 90+ dpd also included restructured loans under the resolution framework for Covid-19-related stress (~0.5% as on December 31, 2020). With the subsequent clarity on NPA classification, a significant proportion of the 90+dpd is likely to be classified as NPA by the end of March 2021. ICRA has taken note of the steps being taken by the management to recover from these accounts and expects that the ultimate losses on these accounts would be low, given the secured nature of these loans. Nevertheless, asset quality related challenges would exert pressure on GICHF's solvency and profitability over the near term and the asset quality indicators are likely to remain weaker than peers. The ratings also factor in GICHF's track record of more than 30 years in the housing finance business, the granularity of its loan book with low credit concentration risk, and its focus on the salaried borrower profile (74% of the portfolio as on December 31, 2020). The ratings are constrained by the relatively high gearing levels of 8.99 times as on December 31, 2020 (9.32 times as on March 31, 2020). ICRA has also taken note of the company's declining profitability and the interest rate risk on account of the fixed rate component of the lending product. Though the company's net interest margins (NIMs) improved in the current cycle due to the floating nature of its liabilities and the fixed nature of its lending products, the profitability might get impacted in a rising interest rate scenario. GICHF's profitability moderated in FY2020 and continued to decline in 9M FY2021 on account of elevated credit costs with profit after tax/average total assets (PAT/ATA) and return on average net worth of 0.26% and 2.71%, respectively in 9M FY2021 compared to 0.35% and 3.62%, respectively, in FY2020 (1.42% and 14.48%, respectively, in FY2019). ICRA expects the deterioration in the asset quality to further impact GICHF's earnings profile and consequently its internal capital generation. Therefore, the company may need external capital to maintain adequate capitalisation levels and ICRA would monitor the progress on the same. The negative outlook on the [ICRA]AA+ rating reflects ICRA's expectation of the continued pressure on the company's solvency and profitability metrices. The ability of the company to report significant recoveries from the delinquent accounts and also control fresh slippages would be a key monitorable. The outlook may be revised to ‘Stable' if the company is able to report improvement in its asset quality indicators and its capitalisation and profitability profile on a sustained basis.