ICRA has reaffirmed issuer rating of IrAA (Stable) to India Mortgage Guarantee Corporation Private Limited
ICRA has reaffirmed the issuer rating of IrAA (pronounced IR double A) to India Mortgage Guarantee Corporation Private Limited (IMGC)*. This is the high-credit-quality rating assigned by ICRA.
The rated entity carries low credit risk. The rating is only an opinion on the general creditworthiness of the rated entity and not specific to any particular debt instrument. The outlook of the rating is ‘Stable’.
The rating factors in the strong profile of the company’s shareholders - National Housing Bank (NHB) (rated by ICRA at [ICRA]AAA for its long term bonds), Genworth Financial Mauritius Holding Limited (Genworth), International Finance Corporation (IFC) and Asian Development Bank (ADB), and the benefits that IMGC derives from NHB’s in-depth understanding of the domestic housing finance market and participants, along with Genworth’s operating expertise in managing mortgage guarantee businesses internationally.
The rating factors in the strong commitment from IMGC’s shareholders to keep it well capitalized following an annual capitalization assessment process as per which, based on portfolio performance, estimated future stress losses and projected growth, IMGC will budget for any additional capital in advance.
The rating is constrained by the untested nature of the mortgage guarantee business in India, likely concentration risk in the initial ramp up period and the nascent stage of the company’s operations, with an insurance in force of Rs. 338 crore as on Mar-15. Ability of the company to manage portfolio risks, including adverse selection risks on contracts underwritten, and also charge premiums efficiently in relation to underlying risks as it scales -up its operations are important rating sensitivities.
ICRA however notes the moderate expected build-up in operations, intended selective underwriting approach and expertise the company derives from Genworth which manages mortgage guarantee businesses internationally.
The rating of IMGC derives strength from strong parental support including National Housing Bank (NHB), Genworth Financial Inc., USA (GFI), International Finance Corporation (IFC) and Asia Development Bank (ADB), long track record of operations of the parent company GFI in the mortgage guarantee/insurance business across the globe, significant position in the Indian mortgage loan industry value chain, favorable market position of the entity in Indian mortgage guarantee market emanating from first mover advantage and low competition in the initial years of operations and favorable outlook for mortgage guarantee industry in India. These rating strengths are partially offset due to untested business model of mortgage guarantee business in India.
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