Fitch Ratings today said that the exit of DBS Bank Ltd, is not expected to affect Cholamandalam DBS Finance Ltd.'s (CDFL) business plans, as it would continue to focus on its long-established vehicle finance for used, medium commercial, and light commercial vehicles, as well as home equity and corporate mortgage products.
The company exited the small ticket personal loans (STPL) business in September 2008, which it entered into after the joint venture with DBS.
The national long-term rating of CDFL is 'AA-(ind)' and the rating of Rs3.5 billion subordinated lower tier 2 debt rating is at 'AA-(ind)'.
The rating outlook is negative and Fitch is currently reviewing the credit.
CDFL announced that Murugappa Group is buying over the entire stake from DBS, which would increase the shareholding of Murugappa Group to 74.96 per cent.
This transaction is expected to be completed in the next few weeks, followed by a change in its name.
Murugappa, a large diversified Chennai-based conglomerate had majority ownership of CDFL until FY05, when DBS took a stake of more than 37 per cent.
The national long-term rating of CDFL was downgraded and outlook was revised to negative in December 2008, reflecting the rising delinquencies in CDFL's STPL business during the challenging operating environment and the weak liability profile (i.e. higher reliance on short-term financing).
Its financial performance (CDFL reported a loss of Rs17.3 crore in the nine months ended December 2009) has remained weak on account of a one-time provision on two large investments.
Fitch notes that delinquencies in the unsecured loan portfolio may have peaked, though pressures in the secured portfolio may persist over the next 12 months.
CDFL was set up in 1978, and has traditionally specialised in commercial vehicle finance.