Mar 21, 2017 04:06 PM IST | Source: CNBC-TV18

Don't expect much impact of ICRA outlook on borrowing cost: Satin Credit

In an interview to CNBC-TV18's Sumaira Abidi & Reema Tendulkar, HP Singh, Founder & MD of Satin Creditcare Network said that ICRA has changed the outlook from stable to negative.

Satin Credit was the stock on the radar after rating agency ICRA downgraded outlook on debentures from stable to negative on back of poor collection efficiencies.

Collection efficiencies of the company dipped to 78 percent in February versus 99 percent reported post-demonetisation, according to ICRA.

However, they have affirmed BBB+ rating on non-convertible debentures (NCD0 and subordinate debt.

In an interview to CNBC-TV18's Sumaira Abidi & Reema Tendulkar, HP Singh, Founder & MD of Satin Creditcare Network  explains the rationalee behind the downgrade in the outlook.

Below is the verbatim transcript of HP Singh's interview with CNBC-TV18

Sumaira: The downgrade has come in on the back of the collection efficiency which dipped in November to February period. What it is at now, in February and how this compares to the previous quarter?

A: I will clarify a few points based on how this outlook has been from stable to negative. It is not a downgrade. It is basically an outlook which has changed from stable to negative. I think a couple of points are clarificatory in nature which have not been taken in its due endeavour by the rating agency. However, I do no blame them.

Therefore, what we are looking at majorly in our representation to them is that the lag for November and December, technically shows a lag of about 6 percent in November and about 7 percent lag in December, which means in normal parlance that 6 percent of our borrowers have not paid their November instalment and 7 percent of the borrowers have not paid their December instalment and if you compare with peers of ours, the difference is about 3-4 percentage points. So our sense is that this is the best way of looking at how our collection efficiencies are panning out to be. The 30 day PAR or 60 day PAR will not give a clear-cut picture of how this is panning out to be. So this is where we stand right now and for us this would have been main reason for looking at how this has to be seen.

The other fact which we have put across to the rating agencies is that we have large liquidity which is there and which is about 7 month liquidity which we still have in our books. So we have a long liquidity. So in terms of any kind of outlook, it doesn't go into that distance. So the debentures and probably the instrument which have been rated, the first one which goes in for repayment is two years from now. So about Rs 80 crore goes in for repayment for two years from now, about Rs 100 crore goes in for repayment three years from now and about Rs 80 crore again goes in for repayment for another five years from now. So in the near term future this doesn't hold well. However, if you look at from the collection efficiency point of view portfolio at risk (PAR) buckets will insignificant but my sense is that this is what we should look at, the November lags and the December lags.

Reema: We will get to more details about the picture, right now you gave us the numbers of 6 and 7 percent for November and December of your stressed portfolio but purely on account of the rating change and the rating being negative for non-convertible debentures (NCDs) as well as the subordinate debt program. Does it in any way change your borrowing cost if not for the current ones but in the near future if you look to borrow, would it change the borrowing cost?

A: I don’t think so they have still reaffirmed their rating, so I think this negative outlook is technically a perception rating which helps in terms of how they look at it. By them reaffirming the rating, I think that is a very positive sign based on also what we are bringing in as capital in the next one month; we have our extraordinary general meeting (EGM) and we are bringing in more capital. So, our sense is that the cost of funds which we now get from lenders and everything will not undergo any change because the rating is still being reaffirmed. It is only the outlook which is based on the way ICRA looks and the way we look at I think probably we are on a different platform altogether.

My sense is, just to keep it on lighter side, they should probably have something which says it is not negative they should look at it basically that achieving fairly stable. I think somebody has to be creative enough to not to give an outlook like this but say this is coming to achieving fairly being stable over here.

Sumaira: What about you’re the portion of the book from UP I understand it is roughly about one-third, right? What is the kind of impact you see now post elections?

A: That is why I had clarified probably last week also our UP book is closed to about 33 percent and our collection efficiency in UP as of last week is closed to about 92 percent plus. So, that is where we have come up from November onwards where UP was probably at 45 percent or 50 percent collection efficiency.

I think UP has moved a long distance, we have come up to this level and in the next one month or may be two months we will fairly be back to the same normalcy levels what we had seen pre-demonetisation. So, we are fairly confident about reaching over there.

Reema: Let me come to the point that you made earlier that the lag for November and December is at 6 and 7 percent respectively in terms of the dues which have not yet come through to the company, what is the figure in January, February and in March so far in the first 20 days?

A: January is close to about 11 percent; so, 6, 7 and 11. I think February will still not be an indicator because the lags will first happen for the November and December months. However, if you look at it as November, December and January then January is close to about 11 percent or so.

Reema: What about the fact that ICRA says there is significant deterioration in your portfolio asset quality. How would you like to respond to that?

A: As I told you, significantly would have been in November. We are not talking about March where our collection efficiencies and our lags have improved to such a long distances. There has been deterioration but we are fairly stable now. So that is what I said. I think they will have to look at it from that point of view.

Deterioration yes, in November-December and definitely we would have talked about it. A negative outlook probably in November and December would have fairly been okay but now somebody has to be creative enough to tell us that it is reaching fairly stable outlook right now. If it has not reached stable outlook, it is reaching fairly stable and not the negative outlook - that is the way we think.

Reema: What is the overall collection efficiency on your portfolio right now?

A: Our collection efficiency is close to 90 percent now.
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