Rationale

 The ratings take into account the strong promoter profile of GIC Housing Finance Limited (GICHF or the company). As on June 30, 2020, General Insurance Corporation of India (GIC-Re) and its erstwhile subsidiaries (The New India Insurance 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. Given the ownership, the strong board representation and sharing of brand name, ICRA expects GICHF to continue to receive managerial, operational and financial support from the promoters, as and when required. The ratings also factor in GICHF's track record 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 March 31, 2020). The credit strengths are, however, offset by the continuing deterioration in the company's asset quality profile in FY2020 and Q1 FY2021 with an increase in the gross non-performing assets (GNPAs) and net NPAs (NNPAs) to 5.67% and 3.05%, respectively, as on June 30, 2020 (5.36% and 3.01%, respectively, as on March 31, 2020 and 4.75% and 2.43%, respectively, as on June 30, 2019). Moreover, the ratings are constrained by the moderate economic gearing level of 9.32 times as on March 31, 2020 and 9.71 times as on June 30, 2020 and the weak solvency indicator (Net NPA/Net worth) of 31.35% as on March 31, 2020 and 33.14% as on June 30, 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. GICHF's profitability moderated in FY2020 and continued to decline in Q1 FY2021 with profit after tax/average total assets (PAT/ATA) and return on average net worth of 0.35% and 3.62%, respectively, compared to 1.42% and 14.48%, respectively, in FY2019 (-1.70% and -18.04%, respectively, in Q1 FY2021). ICRA expects the moderation in the asset quality to further impact GICHF's earnings profile and consequently its internal capital generation. Therefore, in order to maintain adequate economic capitalisation levels, the company may need external capital and ICRA would monitor the progress on the same. Nevertheless, ICRA takes note of the Government of India's (GoI) thrust on the affordable housing segment, which augers well for GICHF given its focus on this segment. The Negative outlook on the [ICRA]AA+ rating is on account of the weakening in the asset quality indicators (GNPAs and NNPAs of 5.67% and 3.05%, respectively, and solvency ratio of ~33% as on June 30, 2020) and the consequent moderation in the profitability in FY2020 and Q1 FY20201. The outlook may be revised to Stable if the company improves its asset quality indicators and its capitalisation and profitability profile.