Fitch Ratings has today assigned Deutsche Postbank Home Finance Limited's (DPHF) proposed INR500m lower tier 2 subordinated bonds programme a National Long-term rating of 'AA+(ind)'. The agency has simultaneously affirmed DPHF's National Long-term rating at 'AA+(ind), the existing INR500m lower tier 2 subordinated bonds at 'AA+(ind)', INR500m non-convertible debentures at 'AA+(ind)' and National Short-term rating at 'F1+(ind)'.
DPHF's ratings reflect Fitch's expectation of continued support from its parent, Deutsche Postbank AG (DPB; 'A+'/Outlook Stable). Fitch expects Deutsche Bank AG (DB; 'AA-'/Outlook Negative) to acquire a majority stake in DPB, at the latest by Q112, which may result in DPHF becoming a subsidiary of DB. Until such time, the agency expects DPB to continue supporting its Indian subsidiary with timely capital infusion and management oversight. This is crucial as the company has a limited track record and its risk profile is likely to increase due to above-average loan growth planned for the medium term.
As a 'metro-regions' focused company (year-end March 2009: 83% of loans), DPHF competes with the largest housing finance companies and banks whose funding cost is lower due to recourse to deposits and/or their position as a quasi-public sector company. Fitch considers DPHF's net interest margin adequate on a risk-adjusted basis, but expects it to remain weaker than peers. DPHF's cost/income ratio is higher than peers and is expected to remain so, despite cost savings from centralizing credit appraisals. While loan loss provisions may remain lower than peers, a lower net interest margin and higher operating costs would mean that its return on assets, though satisfactory, would remain below peers.
DPHF's asset quality benefited from strong recovery and its gross NPL ratio improved to 0.74% in FY09 from 0.84% in FY08. The company plans to expand, more rapidly in the non-housing segment, which means that qualitative improvement in monitoring and control would be required. In Fitch's opinion, maintaining asset quality through the difficult economic environment in FY10 would be challenging.
Fitch expects the parent to be willing and able to infuse capital in a timely manner to enable DPHF to maintain its target capital adequacy ratio of 13% on a sustained basis.
DPHF is wholly owned by DPB through BHW Holding. It operates with 25 branches and lends primarily to salaried borrowers for residential housing.
Fitch Ratings currently maintains coverage of approximately 6,000 financial institutions, including over 3,200 banks and 2,200 insurance companies. Finance & leasing companies, broker-dealers, asset managers, managed funds, and covered bonds make up the remainder of Fitch Ratings’ financial institution coverage universe.
Fitch India has Five rating offices located at Mumbai, Delhi, Chennai, Kolkata and Bangalore. Fitch is recognised by Reserve Bank of India, Securities Exchange Board of India (SEBI) and National Housing Bank.
