Press Release. STCI Finance Limited November 02, Ratings. Amount (Rs. crore) Instruments. Rating Action. Ratings 1

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1 Ratings Instruments Non- * Details of instruments/facilities in Annexure-1 STCI Finance Limited November 02, 2017 Amount (Rs. crore) 1000 (Rupees one thousand crore only) Ratings 1 CARE (Double AA Minus; Outlook : ) Rating Action Reaffirmed Rating Rationale and Key Rating Drivers The rating factors in strong parentage, experienced board, comfortable capital adequacy and gearing levels, moderate asset quality, moderate profitability parameters, relatively small scale of operations, high exposure to promoter funding and borrower concentration risk. Continued parent support, asset quality, profitability, capitalization and portfolio diversification are its key rating sensitivities. Detailed description of the key rating drivers Key Rating Strengths Strong parentage STCI s credit profile derives comfort from strong parentage and the resultant managerial and funding support extended to it. The company is promoted by major public sector banks (together holding a stake of 78.0%), public sector insurance companies (6.6%) and other financial institutions (15.4%). BoI (Upper Tier II rated CARE ) is largest shareholder in the company holding around 30% stake as a result of which STCI is an associate of the bank. BoI reported Gross & Net NPA as on June 30, 2017 at 13.05%(PY: 13.38%) and 6.70%(PY:7.78%) respectively. Also in Q1FY18, BOI reported a loss of Rs.1,558 crores in comparison to loss of Rs. 6,089 crores reported in Q1FY17. Thus, the asset quality and profitability has improved in Q1FY18 in comparison to Q1FY17. In August, 17, BOI announced its plans to sale its stake in STCI Finance Limited in order to raise capital of Rs. 626 crores by floating a RFP (request for proposal) with a stock exchange and interested buyers were asked to submit their bids. However, there are no further updates and nothing has materialized. Strong Management and board STCI benefits from the managerial and financial support extended to it by BOI. At the helm of operational affairs is Mr. Pradeep Madhav, MD & CEO. Mr. Pradeep Madhav has more than 35 years of experience of working in Bank and the Primary Dealership. He has extensive experience of the Debt market and Treasury operations.the board comprises of experienced Non-executive Directors viz. Mr. T.C. Venkat Subramanian (Non-Executive Chairman of Indian Bank), Mrs. Thankom Mathew (Ex-Executive Director, LIC). Strong capital adequacy and comfortable gearing levels The company continues to have strong capitalisation parameters. As on March 31, 2017, STCI Finance reported Capital Adequacy Ratio (CAR) stood at of 31.10% (FY16: 25.22%) while Tier I CAR stood at 30.71% (FY16: 24.85%). The company s 1 Complete definition of the rating assigned are available at and other CARE publications. 1 CARE Ratings Limited

2 capitalisation profile derives support from significant headroom for raising Tier II capital. The company continues to have comfortable gearing levels. Company s gearing levels stood at 2.71x as on March 31, 2017 (P.Y.: 3.03x). Moderate Financial performance During FY17, net outstanding portfolio of the company reduced to Rs.2,958 crore from Rs.3,231 crore during FY16. The company s loan portfolio can be classified into two main categories i.e. loan against shares (LAS) and corporate/builder funding. Outstanding loan against shares portfolio reduced to Rs.1,810 crore in FY17 from Rs.2,182 crore in FY16. Reduction in outstanding loan against shares portfolio is on account of lower disbursements, lower roll-overs and higher prepayments. The company has consciously reduced outstanding loan against shares portfolio to diversify its asset base. In terms of percentage, loan against shares portfolio constituted 61% of the advances (P.Y.:66%) and corporate/builder funding constituted 39% of the advances (P.Y.:34%).The company reported total income of Rs.498 crore in FY17 (P.Y.:Rs.456crore). Though there is increase in the total income, operating income has shown a decline of 8%. The increase in income is due to dividend income and gains on sale of investments. Provision and write offs have also increased during FY17 to Rs.94 crore from Rs.75 crore during FY16 due to increase in slippages. Higher provisions and write offs affected profitability adversely in FY17.NIM and ROTA stood at 5.75% (PY:4.51%) and 4.8% (PY:1.82%) respectively. NIM has shown an increase on account of change in product mix towards building a relatively higher yielding corporate portfolio. ROTA has shown an improvement due to change in product mix towards higher yielding assets and contribution from other income in the form of dividends and gain on sale of investments. Moderate asset quality GNPA and NNPA stood at 2.39% (PY: 5.14%) and 1.02% (PY: 2.25%) respectively. The ratios show an improvement in comparison to the previous year. However during FY17, the company reported slippages of Rs. 55 crores, with marginal recoveries and there was write off of Rs.152 crore. Liquidity profile The liquidity profile of the company as on March 31, 2017 shows negative cumulative mismatches in 1-3 months time buckets on account of CP maturities and short term loan payments. Around 38% of the total company borrowings are short term borrowings as on March 31, 2017 in comparison to 70% as on March 31, The company is increasing its share of long term borrowings in line with increasing focus on long term assets. Key Rating Weakness Concentration risk with high proportion of LAS and promoter funding portfolio Although, the company provides funding for loans against shares, corporate loans and real estate, its portfolio is largely concentrated in a single asset class of LAS/ promoter funding. STCI s loan portfolio predominantly comprises of LAS which formed 61% of the total loan portfolio as on Mar.31, 2017 (P.Y.:66%). However, the composition of loan against share portfolio has come down due to exposure to real estate sector and management has intimated that LAS proportion is further expected to come down given that the company intends to enter diversify and venture into various other areas to increase the wholesale book.stci s loan book has concentration risk with top 20 exposures as on March 31, 2017 accounting for 43.61% of total loan portfolio (P.Y.: 48.82%). 2 CARE Ratings Limited

3 Analytical approach: CARE has consider the standalone and financial profile of STCI Finance Limited ownership and expected support from its promoters largely being public sector banks. along with Applicable Criteria CARE s policy on default recognition Criteria for short term instruments Criteria for Non-Banking Financial Companies Financial ratios Financial Sector Rating Methodology: Factoring Linkages in Ratings About the Company STCI Finance Ltd. (STCI Finance) (formerly known as Securities Trading Corporation of India Limited), is a Systemically Important Non-Deposit taking NBFC registered with Reserve Bank of India. Presently, STCI is in the business of offering products like Loan against marketable securities, promoter funding, corporate loans and builder funding. Presently, STCI is an associate of Bank of India (BoI) with latter holding around 30% stake in the company. Public sector banks and public sector insurance companies hold 78% and 7% stake, respectively with the rest being held by other financial institutions. In May 1994, Reserve Bank of India promoted STCI, with the objective of fostering an active secondary market in Government Securities and Public Sector bonds. In 1996, STCI was authorized by RBI as one of the first Primary Dealers (PDs) in India. STCI was a market maker in government securities, corporate bonds and money market instruments apart from carrying out proprietary trading in equity both in the cash & derivatives (F&O) segment. The company s other lines of activities included trading in interest rate swaps - both for hedging and market making. RBI divested its entire shareholding in STCI in two stages- first in 1997 to bring it down from 50.18% to 14.41% and the balance in 2002 to the existing shareholders. In compliance with the RBI guidelines regarding the diversification of business activities by PDs, STCI divested its PD business in a step down subsidiary named STCI Primary Dealer Limited in October Consequently, since 2007, STCI has been undertaking lending and financing activities. With a view to reflect the widening mix of its business, the name of the company was changed from Securities Trading Corporation of India Limited to STCI Finance Limited with effect from October 24, STCI has two subsidiaries viz. STCI Primary Dealer Limited (rated ICRA A1+) and STCI Commodities Limited. In line with RBI requirement, STCI Primary Dealer Ltd. has started focusing on core primary dealer activities and has stopped all the non-core activities like mutual fund distribution, PMS, equity trading and merchant banking. In August, 17, BOI announced its plans to sale its stake in STCI Finance Limited in order to raise capital of Rs. 626 crores by floating a RFP (request for proposal) with a stock exchange and interested buyers were asked to submit their bids. However, there are no further updates and nothing has materialized. Also, Mr Pradeep Madhav has joined as MD & CEO in place of Mr. Yogesh Gaat. Mr Pradeep Madhav was an Ex-MD of STCI Primary Dealer Limited (wholly owned subsidiary of STCI Finance Limited) 3 CARE Ratings Limited

4 Brief Financials (Rs. crore) FY16 (A) FY17 (A) Total operating income PAT Interest coverage (times) Total Assets Net NPA (%) ROTA (%) A: Audited Status of non-cooperation with previous CRA: Not Applicable Any other information: Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at Investors/market intermediaries/regulators or others are welcome to write to for any clarifications. Analyst Contact: Name: Mr Ravi Kumar Tel: Mobile: About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. 4 CARE Ratings Limited

5 Disclaimer CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. Annexure-1: Details of Instruments/Facilities Name of the Instrument Date of Issuance Coupon Rate Maturity Date Size of the Issue (Rs. crore) Rating assigned along with Rating Outlook Non- Debenture 9.40% 1/10/ CARE Non- Debenture 9.67% 25/06/ CARE Non- Debenture 9.89% 30/07/ CARE Non- Debenture 9.40% 1/10/ CARE Proposed NCD CARE Annexure-2: Rating History of last three years Sr. No. Name of the Instrument/Bank Facilities Type Current Ratings Amount Rating Outstanding (Rs. crore) assigned in Rating history assigned in assigned in assigned in Non 2. -Non 3. -Non 4. -Non LT )Withdrawn (21-Mar-16) 2)CARE AA LT - - 1)Withdrawn (14-Apr-17) LT CARE LT CARE )CARE AA (28-Jul-14) 5. -Non 6. -Non LT CARE LT CARE (06-Jan-16) (26-Mar-15) - 5 CARE Ratings Limited

6 CONTACT Head Office Mumbai Ms. Meenal Sikchi Mr. Ankur Sachdeva Cell: Cell: meenal.sikchi@careratings.com ankur.sachdeva@careratings.com Ms. Rashmi Narvankar Mr. Saikat Roy Cell: Cell: rashmi.narvankar@careratings.com saikat.roy@careratings.com CARE Ratings Limited (Formerly known as Credit Analysis & Research Ltd.) Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: Fax: care@careratings.com AHMEDABAD Mr. Deepak Prajapati 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad Cell: Tel: deepak.prajapati@careratings.com BENGALURU Mr. V Pradeep Kumar Unit No , 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore Cell: Tel: , pradeep.kumar@careratings.com CHANDIGARH Mr. Anand Jha SCF No , First Floor, Phase 11, Sector 65, Mohali Chandigarh Cell: Tel: / 09 anand.jha@careratings.com CHENNAI Mr. V Pradeep Kumar Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai Cell: Tel: / pradeep.kumar@careratings.com COIMBATORE Mr. V Pradeep Kumar T-3, 3rd Floor, Manchester Square Puliakulam Road, Coimbatore Tel: / pradeep.kumar@careratings.com HYDERABAD Mr. Ramesh Bob 401, Ashoka Scintilla, , Himayat Nagar, Hyderabad Cell : Tel: ramesh.bob@careratings.com JAIPUR Mr. Nikhil Soni 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur Cell: Tel: / 14 nikhil.soni@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata Cell: Tel: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi Cell: Tel: swati.agrawal@careratings.com PUNE Mr.Pratim Banerjee 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune Cell: Tel: pratim.banerjee@careratings.com CIN - L67190MH1993PLC CARE Ratings Limited