Rationale

 The rating for ICICI Securities Primary Dealership Limited’s (I-Sec PD) commercial paper programme factors in its superior liquidity profile. This is reflected in the high share of liquid Government securities (G-Secs) in the overall assets and access to call money and borrowings under repo from the market, apart from access to a standing liquidity facility (SLF) from the Reserve Bank of India (RBI). Further, given its sizeable net worth, the company has a satisfactory cushion to withstand the impact of adverse interest rate movements, resulting in a strong capitalisation profile. I-Sec PD’s parentage, in the form of ICICI Bank Limited {rated [ICRA]AAA (Stable) for its Basel III Tier II bonds}, and the continued support as depicted by the managerial and financial aid received from the bank also remain key strengths. ICRA notes that with the rise in the yield on corporate bonds, the non-statutory liquidity ratio (non-SLR) securities have increased in relation to the net owned funds (NOF) and other long-term funds. However, these securities largely include highly rated corporate bonds, thereby mitigating the credit and liquidity risks associated with these instruments. As policy rates are expected to witness a shallow cut in H2 FY2025, a decline in short-term rates is likely to have a favourable impact on the company’s earnings profile. Nevertheless, ICRA notes that I-Sec PD’s earnings profile will remain susceptible to adverse interest rate movements as the portfolio largely comprises debt securities. Moreover, the company’s leverage has been traditionally higher than its peers, which increases its vulnerability to market risks. The net interest income (NII) is expected to remain range-bound, given the flat yield curve, though the interest rate environment could remain conducive for increased trading opportunities in the near to medium term. Going forward, I-Sec PD’s ability to withstand the volatility in interest rates while adhering to its internal risk management policies, continued linkages with its parent, and its ability to adapt to regulatory changes for primary dealers (PDs) will remain key rating sensitivities.