CRISIL Final Grading Report 2010

8/8/2019 CRISIL Final Grading Report 2010

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Autoinvest Leasing and Finance(I) Private Limited

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Analytical Contacts

Mr. Ramraj PaiDirector

[email protected]+91 22 3342 3036

Mr. T Raj SekharSr. Manager

[email protected]+91 44 66563136

Microfinance InstitutionGradings

Date Assigned

October 12, 2010


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DISCLAIMER

CRISIL's microfinance institution (MFI) grading reflects CRISILs current opinion on the ability of an

MFI to conduct its operations in a scalable and sustainable manner. In the case of NGO-MFIs and

entities with multiple businesses, CRISILs MFI Gradings apply only to their microfinance

programmes. The MFI Grading is a one-time exercise and the Grading will not be kept under

surveillance. However, the MFI Gradings are revised as and when circumstances so warrant.

CRISIL recommends that the user of the Grading seeks a review of the Grading if the graded

institution/microfinance programme experiences significant changes/events during this period

which could impact the graded institution/its grading.

CRISIL MFI Gradings are based on the information provided by the Institution, or obtained by

CRISIL from sources it considers reliable. CRISIL does not guarantee the completeness or accuracyof the information on which the MFI Grading is based. CRISIL MFI Grading is not a

recommendation to purchase, sell or hold any financial instrument issued by the graded MFI, or to

make loans and donations / grants to the institution. The MFI Grading does not constitute an audit

of the graded MFI by CRISIL.

The MFI Grading Report and the information contained therein are the intellectual property of

CRISIL. The MFI Grading Report should not be reproduced or distributed or communicated directly

or indirectly in any form to any other person or published or copied in whole or in part, for anypurpose or by any means without the prior written permission of CRISIL. The MFI Grading should

not be used for mobilising deposits/savings/thrift/insurance funds/other funds (including equity)

from their members/clients or general public and should not be used in its external

communications, promotional materials or member/client passbooks. CRISIL is not responsible for

any errors and especially states that it has no financial liability, whatsoever, to the subscribers/

users/transmitters/distributors of its MFI Gradings. For the latest information on any outstanding

CRISIL MFI Gradings, please contact CRISIL RATING DESK at [email protected] or at

(+91-22)-3342 3047/3064.


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MFI GRADING

MFI GRADING HISTORY

None

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CRISILs microfinance institution (MFI) grading is a current opinion on the

ability of an MFI to conduct its operations in a scalable and sustainable

manner. The grading is assigned on an eight-point scale, with mfR1 being

the highest, and mfR8 the lowest. The MFI grading is a measure of the

overall performance of an MFI on a broad range of parameters under

CRISILs MICROS framework. It includes a traditional creditworthiness

analysis using the CRAMEL approach, modified to be applicable to the

microfinance sector. The acronym MICROS stands for Management,

Institutional arrangement, Capital adequacy and asset quality, Resources

and asset-liability management, Operational effectiveness, and Scalability

and sustainability.

MFI Grading Scale: mfR1 - highest; mfR8 lowest


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FACT SHEET

Name of the MFI : Autoinvest Leasing and Finance (I) Private Limited(Vistaar Livelihood Finance )

Year of Incorporation : September 1991

Year of commencement ofmicrofinance programme

: June 2010

Legal status : Non deposit taking non banking financial company

Chief Executive/Functionary : Mr. Brahmanand Hegde, Managing Director

Contact details : Mr. Brahmanand HegdeManaging DirectorAutoinvest Leasing and Finance (I) Private LimitedNo.9, 3rd Cross37th Main, KAS Officers ColonyBTM 2nd StageBengaluru - 560076Tel: +91-80-40463218Email-id: [email protected]: www. vistaarlfi.com

Lenders : Ananya Finance for Inclusive Growth, DevelopmentCredit Bank, HDFC Bank Ltd

Statutory Auditors : Walker Chandiok & Co., Chartered Accountants(Grant Thorton), New Delhi


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ABOUT THE MFI

Lending model : Group based lending model

Products : Joint Liability loan with loan size ranging fromRs.8,000Rs.25,000 per member. The MFI currentlyextends 50 week loans at an interest rate of 27 percent on reducing basis.

Borrower base : 2690 borrowers as on August 31, 2010

Employees : 147 (95 credit officers) as on August 31, 2010

Number of branches : 9 as on August 31, 2010

Loan outstanding : Rs.31.9 million as on August 31, 2010

Loans disbursed : Rs.33.6 million during the 2 months ending August 31,2010.

Operational areas : Nine districts (Eight districts in Tamil Nadu and Onedistrict in Karnataka) as of August 31, 2010

OUTREACH SUMMARY

Particular Aug-10No. of groups 538

No. of members 2690No. of borrowers 2690

No. of branches 9No. of districts covered 9

Women borrowers 100%Disbursements (Rs.million) 33.6

Loan outstanding (Rs.million) 31.9

PRODUCTIVITY AND EFFICIENCY INDICATORS

As on/For the period ending, Aug-10Members/branch (No.) 299

Borrowers/ branch (No.) 299Loan outstanding/branch (Rs.million) 3.5

Loan outstanding/ credit officer (Rs.million) 0.3Loan outstanding/ borrower (Rs.) 11859

Members / credit officer (No.) 28

Borrowers / credit officer (No.) 28Groups / credit officer (No.) 6

Borrowers/members (%) 100


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Social Indicators and Transparency Indicators

As on August 31, 2010Average loan outstanding/per capita GNI (2009 figure)* (in %) 32.6Women staff/total staff (in %) 0.7

Women borrowers/total borrowers (in %) 100Effective IRR (including interest rates, processing fees, security deposit & any otherfees charged by the organisation)? (in %) 30.2Are interest rate (on declining basis) communicated to clients in writing? YesAre processing charges communicated to clients in writing? YesIs an official receipt provided by the MFI to clients after repayment collections? YesIs access to loan of other MFIs one of the parameters to select/screen clients? YesIs access to loan of other MFIs/residual income one of the factors to appraiserepayment paying capacity of clients? YesDoes the MFI appraise the client's income/poverty/asset level and use it to targetlow income clients? YesDoes the MFI capture and analyse reasons for client drop out rate?

YesIs any head office designated contact details provided to clients as part of grievanceredressal mechanism offered to clients? Yes

*Per capita GNI is based on current prices. Source: CCER computations based on CentralStatistical Organisation (CSO) data


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GRADING RATIONALE

The microfinance institution (MFI) grading assigned to Autoinvest Leasing and Finance (I)

Private Limited (Vistaar) reflects the MFIs:

Experienced board and senior management team Commitment to implementation of strong processes and systems Adequate capitalisation

The above-mentioned grading strengths are partially offset by Vistaars:

Short operating track record Asset quality and credit risks untested through a full business cycle Modest expected earnings profile over next two years

PROFILE

Autoinvest Leasing and Finance (I) Private Limited is a non-deposit-taking non-banking

financial company (NBFC-ND) registered as a loan company with the Reserve Bank of

India (RBI). The company was incorporated in September 1991. The present promoters

acquired this company in March 2010 and have applied for the name change to Vistaar

Livelihood Finance. The company started its microfinance operations on June 17 2010, and

has since expanded to nine brancheseight in Tamil Nadu and one in Karnataka. As on

August 31, 2010, the company had 2690 borrowers and loans outstanding of Rs.32 million.

Mr. Brahmanand Hegde, former director microfinance, Fullerton India Credit Company

Ltd (FICC) and Mr. Ramakrishna Nishtala, former head microfinance, FICC are the core

promoters of the company. Mr. G S Sundararajan, managing director, Shriram Capital Ltd,

and former chief executive officer and managing director of FICC, is also a significant

shareholder. The three promoters together hold 55 per cent of the companys stake. The

other shareholders include Elevar Equity (22.5 per cent stake), the equity fund manager of

Unitus Capital and SVB India Capital Partners, a venture fund (22.5 per cent).


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Vistaars mission is to make a significant and sustainable impact on the lives of under-

served entrepreneurs, across rural and urban India, by enhancing the economic output of

their livelihoods. The companys vision is to provide customised financial services and

other value-added enablers, focused on customers livelihoods, in a transparent and

innovative manner.

Loan Methodology and Product Offerings

*To be introduced shortly**Tie-up with Kotak Mahindra Old Mutual Life Insurance Ltd.

Vistaars lending model is similar to the Grameen Bank model. Vistaar offers loans to

women organised into joint liability groups (JLGs). Currently, the company offers only one

loan product, which is differentiated by the loan amount (refer to Table 1). In the near future,

the MFI aims to offer larger-ticket customised loan products with repayment flexibility.

Such loans will be focussed on livelihood activities such as dairy, power loom, handloom,

home-based industries, and handicrafts.

Table 1: Loan ProductsParameters Weekly Fortnightly* Monthly*Loan amount offered(Min. to Max.) Rs.8,000- Rs.25,000 Rs.10,000-Rs.40,000 Rs.10,000-Rs,40,000

Tenor (Min. to Max.) 50 weeks 12-24 months 12-24 months

Interest rate

27 per cent(reducing basis)

29 per cent (reducingbasis)

29 per cent (reducingbasis)

Documentation/Enrolment Fees Rs.350

350 for loans up to

Rs.15,000;Rs.450 upwards for

larger loans

Rs.350 for loans up to

Rs.15,000;Rs.450 upwards for

larger loans

Insurance Fees (forcustomer andspouse) ** Rs.200

Rs.200 for loans up toRs.15,000;Rs.300

upwards for largerloans of tenure

greater than 1 year.

Rs.200 for loans up toRs.15,000;

Rs.300 upwards forlarger loans of tenure

greater than 1 year.


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MANAGEMENTShort operating trackrecord

The grading is constrained by Vistaars short operatingtrack record in microfinance; Vistaar has only about 3

months of experience in microfinance.

Differentiating factorsprovide a definite edge overother start-ups

The company has the advantage of qualified promoterswith vast experienced in rural business and microfinance.

The MFI has several differentiating factors to its credit, in

terms of process and product innovations. CRISIL believes

that if these innovations are successful, Vistaar will acquire

capabilities to expand to new regions, widen its product

range and tie-up for third-party distribution of products

and services. Adequate technologicalarchitecture; scope forbroadening the softwareutilisation

Vistaar has an internet-based loan tracking software (basedon .Net platform). The software is integrated with

biometric devices; such devices are currently being used for

recording collection and attendance details of borrowers.

Data entry and processing is handled by the administrative

team at the branch level. The software solution will support

Vistaars growth plans in the next three years.

However, CRISIL believes that the scope of utilisation ofthe existing technology can be broadened to include several

more aspects of the companys microfinance operations,

namely automatic data consolidation of the branch level

audit reporting and cash flow management, and enable

finer customer authentication at the time of collections.

Elaborate human resource(HR) initiatives

Vistaars HR initiatives are elaborate and aimed at ensuringlow attrition. All the key positions have been filled. The

company had 147 employees as on August 31, 2010. It

follows an elaborate selection and recruitment process, and

has recently started tapping neighbouring catchments for

hiring field staff, in addition to the conventional hiring

methods such as campus interviews, walk-ins, and branch


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manager references. The chosen candidates are provided

first-hand experience of the companys operations before

they join. This is to prevent early attrition of field staff

during the first few months of joining the company.

Furthermore, Vistaar has taken steps to ensure periodicalrefresher training and to reinforce adequate discipline at

the branch level.

Very high cash balance Vistaar has an unusually high branch-level cash balancepolicy compared to most other MFIs. As per the mandated

norm, the cash balance maintained at the branch level

ranges from Rs.50,000 to Rs.900,000. CRISIL believes that

high cash balance at branches exposes the company to

significant operating risks, with the branch staff residing atthe branch premises and having constant access to the vault

and its keys. High cash balance also results in a high cash

float. In order to mitigate the risk of cash holding, the

company has put in place a dual key arrangement at the

branch; however, the effectiveness of the same needs to be

seen.


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INSTITUTIONAL ARRANGEMENTStrong board and seniormanagement team

Vistaar is governed by a five-member board. The boardcomprises of experienced and recognised personnel from

the financial sector. The board includes two nominee

directors representing the investors, Elevar Equity

Mauritius and ICP Holdings. In CRISILs opinion, Vistaars

board composition and shareholder base should provide

the company with sound corporate governance and

transparency. Similarly, Vistaar has a competent senior

management team, experienced in microfinance and retail

finance. Majority of the officials of the key management

team, including the promoters, are from FICC, a leading

NBFC, and have worked together in the past.

The companys management has indicated its commitmentto transparency at all levels, including communication of

interest rates and fees charged to customers. Accordingly,

all the loan terms and conditions are provided to the

customer in a detailed manner at the time of loan

disbursement.

The management is equally focussed on enhancing theefficiency of processes and systems alongside theorganisational growth. In keeping with this, Vistaar has

laid out a strategic road map to grow to 300 branches

within the next three years by effectively utilising its

technological and human infrastructure.


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CAPITALADEQUACYANDASSETQUALITYAdequate capitalisation As on August 31, 2010, Vistaar is capitalised at Rs.153

million, one of the highest for a start-up MFI in India. The

companys net worth was at Rs.127 million as on the same

date. The company expects to disburse a total of Rs.400

million during 2010-11. Vistaar is adequately capitalised for

the level of business it expects to undertake for the rest of

2010-11 (refers to financial year, April 1 to March 31). As on

August 31, 2010, two microfinance investment vehicles

held 45 per cent of the stake in Vistaar.

The company expects to maintain gearing at 4.5 to 5.5 timesand capital adequacy of above 15 per cent over the long

term. Given the managements standing and experience,

CRISIL expects Vistaar to raise timely capital to fund its

medium-term growth plans.

Loan portfolio yet to season Vistaar has healthy asset quality with 100 per cent of itsloan portfolio being current as on August 2010; the on-time

repayment rate has been consistently high since the start of

operations in June 2010. However, with only a few months

of operations, the loan portfolio is yet to season and the

true asset quality will be evident only when Vistaarcompletes one loan cycle. Similarly, the efficacy of the

detailed borrower appraisal and other credit and

operational risk management (current and proposed)

measures, undertaken for large-ticket loans, needs to be

seen over a period of time.


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RESOURCESANDASSETLIABILITYMANAGEMENTAdequate resource profile Given the experience of Vistaars management team,

CRISIL believes that the MFI will manage liquidity and

raise resources on time to fund its expansion plans.

Currently, the companys disbursements are being funded

out of the initial capital raised; the mobilised resource is yet

to be utilised towards on-lending. The companys

confidence in its on-time resource-raising capabilities is

reflected in its on-going branch expansion and product

diversification plans.

Vistaar plans to raise funds through borrowings withtenure of upto two years from a mix of lenders such as

private banks, public banks, apex MFIs, and NBFC, over

the medium term. Presently, it has sanction of Rs.30 million

from HDFC Bank, Rs.20 million from Development Credit

Bank, and Rs.20 million from Ananya Finance for Inclusive

Growth and is in discussions with other lenders to meet its

fund requirement over the medium term.


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OPERATIONALEFFECTIVENESSProfitability expected toremain negative overmedium term

Vistaars projections indicate that given its high start-upcosts and the time taken for branches to reach optimal

capacities, the company will not register profits in 2010-11

and 2011-12. However, with tight monitoring of

productivity and efficiency levels, the company believes

that it will be able to achieve break-even earlier than

projected. Nevertheless, CRISIL does not expect any

significant improvement in Vistaars operating expense

over the medium term without a corresponding

improvement in the companys field-level productivity.

Vistaar started lending in June 2010, and reported anincome of Rs.2.6 million and loss of Rs.23.6 million for the

period between April 01, 2010 and August 31, 2010,

factoring the pre-operative expenses.

As per the companys projections, the spread on lending isexpected to remain low in the next two years. Additionally,

with high operating expense level of beyond 15 per cent of

average funds deployed, Vistaars net profitability margin

is expected to be negative during 2010-11 and 2011-12.


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SCALABILITYANDSUSTAINABILITY Ability to scale up andsustain operations

Vistaars managements strategy is to provide easy accessto cost-effective credit in a transparent manner to low-

income, mass market borrowers who do not have access to

banking channels. At the same time, it also intends to

achieve acceptable returns on investment so that it can

attract capital and human resource to serve the chosen

target segments better. CRISIL believes that the entry of

professionally managed companies into microfinance will

immensely benefit the sector, and companies such as

Vistaar, which attract talent and have adequate funding

resources, have greater ability to scale up and sustain

operations.

Vistaar plans to focus on a few districts in Tamil Nadu andKarnataka during 2010-11 and during Q12011-12. The

company plans to diversify its portfolio to Maharashtra

and Gujarat from Q2 2011-12. CRISIL believes that, as the

company gains experience, the ease of replication in other

states should increase. Similarly, investment in information

technology at an early stage should support improved

service and turnaround capacity and facilitate greatereconomies of scale.

Processes and controlsystems in initial phase,and their efficacy is yet tobe demonstrated

The promoters experience has helped them put in place acompetent senior management team and well-defined

processes and policies with detailed manuals at the very

start of the microfinance operations. However, CRISIL

believes that the efficacy of Vistaars processes and control

systems is yet to be adequately demonstrated, in the light

of its growing and diversifying portfolio, over a period oftime.

Need for timely capitalinfusion to support proposed growth in themedium term

Vistaars net profitability margin is expected to remainnegative over the medium term, given the high business

costs associated with a start-up and the companys growth


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strategy. As a result, it will be some time till Vistaar creates

strong organic capital generation. Therefore, there will be a

need for timely capital infusion in the next three years to

support the companys growth plans and enable it to

maintain adequate capital adequacy.Grading sensitivity factors Positive grading actions at the time of subsequent

assessments will depend on whether Vistaar achieves

strong asset quality, fund and geographic diversification,

improves earnings, and demonstrates adherence to the

processes and policies that have been laid down. On the

other hand, negative grading action will occur if the high

loan growth is not matched by capital increases and if there

are high delinquencies.


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FINANCIAL INDICATORS

Income and expenditure statementRs. million

For the period ended, Mar-13 Mar-12 Mar-11 Aug-10Management Projections Unaudited

Fund based incomeInterest income from loans 853.2 197.2 26.7 0.4

Income from investments /bankdeposits - - - 1.0

Total fund based income 853.2 197.2 26.7 1.4

Interest and finance chargesOn borrowings 358.8 79 12.6 0.0

Finance charges 30.3 18 4.5 0.2

Total interest and finance charges 389.1 97.0 17.1 0.2Gross spread 464.1 100.2 9.6 1.3Total fee based income 215.50 65.00 13.90 1.19Total income 1068.7 262.2 40.6 2.6Gross surplus 679.6 165.2 23.5 2.4

ExpensesPersonnel expenses 282.5 115.2 50.4 14.8Administrative expenses 208.7 84.4 34.5 10.4

Total expenses 491.2 199.6 84.9 25.2Write-offs and provisions 81.1 18.9 2.6 0.3

Depreciation 37.2 13.1 3.5 0.5

Profit/(loss) before tax 70.1 -66.4 -67.5 -23.6

Tax - - - -Profit/Loss after tax 70.1 -66.4 -67.5 -23.6


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Balance sheetRs. million

Balance sheet as on Mar-13 Mar-12 Mar-11 Aug-10Management Projections Unaudited

Liabilities

Share capital 1252.8 652.8 152.8 133.3Share application money - - - 20.1Reserves and surplus -66.6 -136.7 -70.3 -26.7

Net worth 1186.2 516.1 82.5 126.8Borrowings 4902.7 1578.2 373.6 0.0

Total long term borrowings 4902.7 1578.2 373.6 0.0Provision for bad debts 51.9 13.3 2.4 0.3

Other liabilities 4.3

Total current liabilities 51.9 13.3 2.4 4.7Total liabilities 6140.8 2107.6 458.5 131.4

AssetsLoans and advances 5356.8 1646.4 337.3 31.9

Investments 0.0 0.0 0.0 75.5Cash & bank balances 646.1 393.9 107.0 11.9Other assets & advances 0.0 0.0 0.0 3.3

Total current assets 646.1 393.9 107.0 15.2Total funds deployed 6003.0 2040.3 444.3 122.5Net fixed assets 137.9 67.3 14.3 8.9

Total assets 6140.8 2107.6 458.5 131.4


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Ratios

In per cent

As on /For the year ended March 31, 2013P 2012P 2011PYield

Fund based yield (A) 21.22 15.87 9.42Portfolio yield 24.37 19.88 14.46Fee based income /Avg. funds deployed 5.36 5.23 4.90

Total income / Avg. funds deployed 26.57 21.11 14.33

Cost of borrowingInterest paid/Avg. borrowings (B) 12.01 9.94 9.15

Interest spreadSpreads on lending (A) (B) 9.21 5.93 0.27

OverheadsOperating expense ratio 12.21 16.07 29.96Personnel expense ratio 7.02 9.27 17.78

Administrative expense ratio 5.19 6.79 12.17

ProfitabilityReturn on net worth 8.24 -22.18 -64.52Return on funds deployed 1.74 -5.34 -23.82

Operational self sufficiency 107.02 79.79 37.56

Asset qualityProvisioning / Avg. loan outstanding 1.48 1.35 1.32

CapitalisationTotal debt/net worth (times) 4.13 3.06 4.53Capital adequacy 21.59 30.12 23.46


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1 Annexures1.1 Loan purpose-wise outstanding as on August 11, 2010 .................... .............. ....... ....... 211.2 Human resource summary ..............................................................................................211.3 Asset quality .....................................................................................................................21


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