Shriram Housing Finance Limited

Ratings Facilities Commercial Paper programme Details of instruments/facilities in Annexure-1 Shriram Housing Finance Limited August 07, 2018 Amount (Rs.cr) 300 (enhanced from Rs. 200 crore) (Rupees three Hundred crore only) Ratings 1 CARE A1+ ( A one plus) Rating Action Reaffirmed Detailed Rationale & Key Rating Drivers The rating assigned to the commercial paper programme of Shriram Housing Finance Limited. (SHFL) factors in the strong parentage of Shriram City Union Finance Limited (SCUF; rated CARE AA+ (stable), CARE A1+ ), which holds 77.25% in SHFL as on March 31, 2018, strong business synergies with Shriram group, common brand image and access to branch network of Shriram group. By virtue of strong parentage, SHFL also stands to benefit from the strong resource raising capabilities of the group and established track record of the group in South India in lending to the self-employed segment in Tier-II and smaller towns which is the customer profile for SHFL as well. The ratings also take note of comfortable capital adequacy levels of SHFL. The ratings continue to be constrained by the limited track record in housing finance business, low seasoning of portfolio, regional concentration of portfolio to an extent and moderate asset quality during FY18 (refers to the period April 01 to March 31). Going forward, the ability of SHFL to expand operations while protecting its spreads, maintain the asset quality with adequate capitalisation levels and manage its liquidity profile effectively, will be the key rating sensitivities. Detailed description of the key rating drivers Key Rating Strengths Strong support and integration with the parent SCUF is the majority shareholder in SHFL and therefore parentage is a major strength for SHFL. Integration of SHFL with Shriram group is high given the majority shareholding, common brand image & shared logo and access to the branch network. Shriram group has proven track record of and has established relationship with various banks and financial institutions. SHFL also has sanctioned limits from the group companies to the extent of Rs.200 crore to be given as bridge finance to SHFL in times of need. Furthermore, SHFL also receives operational support from the Shriram group network. The board of SHFL includes senior executives having significant experience in the retail finance industry. Strong resource raising ability and comfortable capitalization As on March 31, 2018, the tangible net worth of the company was Rs.441 crore. Shriram group has demonstrated capital raising abilities. The current capital levels of SHFL are comfortable with CAR at 32.53% as on March 31, 2018. The Tier-I CAR stood at 31.96% (PY: 29.31%) while Tier-II CAR stood at 0.57% (PY: 0.64%) as on March 31, 2018. During FY18, the company had raised funds mainly through term debt from banks. The overall gearing of the company stood at 3.28x as on March 31, 2018 as against 3.32x as on March 31, 2017. Liquidity profile SHFL had comfortable liquidity position with relatively high net worth as on March 31, 2018. SHFL however, faces cumulative negative mismatches in some of the longer time buckets, which is a characteristic of the HFCs wherein loans extended to clients have long tenures against comparatively shorter tenure of liabilities owing to lack of availability of long-term funds. SHFL has credit lines from group companies to the extent of Rs.200 crore to be given as bridge finance to SHFL in times of need and committed line of facilities from various banks and institutions of Rs. 160 crore which would support the future growth and liquidity profile of the company. Key Rating Weaknesses Muted growth in loan portfolio and moderation in profitability during FY18 SHFL witnessed muted growth in loan portfolio during FY18 on account of pre-closures and de-growth in LAP loan segment. However the retail housing finance segment grew by 13% during FY18 from Rs. 844 crore as on March 31, 2017 to Rs.957 crore as on March 31, 2018. The total AUM as on March 31, 2018 was at Rs. 1785 crore which grew by only 1% from Rs. 1775 crore as on March 31, 2017. The company reported PAT of Rs.29 crore on a total income of Rs. 272 crore during FY18 as against PAT of Rs.29 crore on a total income of 279 crore during FY17. NIM was around 7.69% during FY18 as against 8.58% during FY17 due to reduction in the yield from 16.99% during FY17 to 14.69% during FY18. The company 1 CARE Ratings Limited

reported ROTA at 1.48% during FY18 as against 1.75% during FY17. During Q1FY19, the company reported a PAT of Rs.4 crore on a total income of Rs.69 crore. Limited track record and low seasoned portfolio with riskier target segment SHFL commenced lending operations in December 2011 and has relatively limited track record and limited seasoning of the loan portfolio. As a result, its asset quality performance through different economic cycles and geographies is yet to be established. Furthermore, SHFL is primarily lending towards the housing finance needs of the relatively riskier asset class comprising of low/middle income borrowers in the informal sector. Geographical concentration, however improving trend witnessed in FY18 With strong presence of Shriram group in the southern region, the portfolio of SHFL is majorly concentrated in south India with Andhra Pradesh, Tamil Nadu and Karnataka accounting for 36% of total portfolio as on March 31, 2017 (PY: 38%). However, the portfolio concentration has improved in the last few years with the company expanding its presence in western regions like Maharashtra, Gujarat and Rajasthan. Moderate asset quality in FY18 The asset quality of the company was moderate with gross NPA and net NPA of 5.01% and 3.70%, respectively, as on March 31, 2018 (gross NPA and net NPA of 2.59% and 1.82% respectively as on March 31, 2017). NPA is mainly due to nature of the self-employed segment which has volatile cash flows, growing portfolio size and lower seasoning of portfolio. Analytical Approach Followed- Standalone. CARE has taken a limited review based on the key financial parameters for the year ended March 2018 (Audited). Applicable Criteria CARE's methodology for short term instruments CARE's Policy on Default Recognition Ratios-Financial Sector Rating Methodology Non Banking Financial Companies About the company SHFL was incorporated in November 2010 and is engaged in housing finance business since December 2011. The company mainly offers housing loans and operates in Tier-2 and Tier-3 cities across India. SHFL, part of Shriram group is a subsidiary of Shriram City Union Finance Limited (SCUF) (rated CARE AA+ (), CARE A1+ ). As on March 31, 2018, SCUF holds 77.25% shareholding and the balance 22.75% is held by Valiant Marutius Partners FDI Ltd (VMPL). SHFL essentially caters to the housing finance needs of self-employed, belonging to middle income group, primarily from Tier-2 and Tier-3 cities. The company also offers builder loans only for construction of residential property. The Non- Housing loans mainly comprise loan against property (LAP). Housing and non-housing loans constituted 63% and 37%, respectively, of the total portfolio outstanding as on March 31, 2018. The average tenure of the housing loan is 12-16 years and the average ticket size is about Rs.15-25 lakh. As on March 31, 2018, SHFL had a network of 83 independent branches and 35 sales offices. Brief Financials (Rs. crore) FY17 (A) FY18 (A) Total income 279 273 PAT 29 29 Interest coverage (times) 1.37 1.37 Total Assets 1,925 1,969 Net NPA (%) 1.82 3.70 ROTA (%) 1.75 1.48 A-Audited Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 2 CARE Ratings Limited

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 www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to care@careratings.com for any clarifications. Analyst Contact: Name: Mr P Sudhakar Tel: 044-2850 1003 Mobile: 9442228580 Email: p.sudhakar@careratings.com **For detailed Rationale Report and subscription information, please contact us at www.careratings.com 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. 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 Date of Instrument Issuance Commercial Paper- Commercial Paper (Standalone) Coupon Rate Maturity Date Size of the Issue (Rs. crore) Rating assigned along with Rating Outlook - - - 300.00 CARE A1+ 3 CARE Ratings Limited

Annexure-2: Rating History of last three years Sr. No. Name of the Instrument/Bank Facilities Type Current Ratings Amount Outstanding (Rs. crore) 1. Debentures-Non Rating LT 100.00 CARE 2018-2019 Rating history 2017-2018 - ; 2016-2017 2015-2016 2. Debentures-Non LT 14.00 CARE - ; 3. Commercial Paper- Commercial Paper (Standalone) ST 300.00 CARE A1+ - 1)CARE A1+ 1)CARE A1+ (05-Aug-16) 2)CARE A1+ 1)CARE A1+ 4. Debentures-Non 5. Debentures-Non 6. Debentures-Non LT 100.00 CARE LT 20.00 CARE LT 50.00 CARE - ; - ; - ; (06-Oct-15) (21-Oct-15) 7. Debentures-Non LT 30.00 CARE - ; 2)CARE AA+ (26-Apr-16) - 8. Debentures-Non LT 500.00 CARE - ; - 4 CARE Ratings Limited

CONTACT Head Office Mumbai Ms. Meenal Sikchi Mr. Ankur Sachdeva Cell: + 91 98190 09839 Cell: + 91 98196 98985 E-mail: meenal.sikchi@careratings.com E-mail: ankur.sachdeva@careratings.com Ms. Rashmi Narvankar Mr. Saikat Roy Cell: + 91 99675 70636 Cell: + 91 98209 98779 E-mail: rashmi.narvankar@careratings.com E-mail: 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 - 400 022 Tel: +91-22-6754 3456 Fax: +91-22-6754 3457 E-mail: care@careratings.com AHMEDABAD Mr. Deepak Prajapati 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad - 380 015 Cell: +91-9099028864 Tel: +91-79-4026 5656 E-mail: deepak.prajapati@careratings.com BENGALURU Unit No. 1101-1102, 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore - 560 001. Cell: +91 98407 54521 Tel: +91-80-4115 0445, 4165 4529 CHANDIGARH Mr. Anand Jha SCF No. 54-55, First Floor, Phase 11, Sector 65, Mohali - 160062 Chandigarh Cell: +91 85111-53511/99251-42264 Tel: +91-0172-490-4000/01 Email: anand.jha@careratings.com CHENNAI Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai - 600 002. Cell: +91 98407 54521 Tel: +91-44-2849 7812 / 0811 COIMBATORE T-3, 3rd Floor, Manchester Square Puliakulam Road, Coimbatore - 641 037. Tel: +91-422-4332399 / 4502399 JAIPUR Mr. Nikhil Soni 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur - 302 016. Cell: +91 95490 33222 Tel: +91-141-402 0213 / 14 E-mail: nikhil.soni@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata - 700 071. Cell: +91-98319 67110 Tel: +91-33- 4018 1600 E-mail: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi - 110 055. Cell: +91-98117 45677 Tel: +91-11-4533 3200 E-mail: swati.agrawal@careratings.com PUNE Mr.Pratim Banerjee 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune - 411 015. Cell: +91-98361 07331 Tel: +91-20- 4000 9000 E-mail: pratim.banerjee@careratings.com CIN - L67190MH1993PLC071691 HYDERABAD Mr. Ramesh Bob 401, Ashoka Scintilla, 3-6-502, Himayat Nagar, Hyderabad - 500 029. Cell : + 91 90520 00521 Tel: +91-40-4010 2030 E-mail: ramesh.bob@careratings.com 5 CARE Ratings Limited