Rationale

 The ratings continue to factor in ICICI Securities Limited’s (I-Sec) strong parentage with ICICI Bank Limited (rated [ICRA]AAA (Stable)/[ICRA]A1+) holding a 74.73% stake as on March 31, 2024. I-Sec helps augment ICICI Bank’s service portfolio and enjoys customer sourcing opportunities. Its importance to the parent is evident from the managerial, operational and financial support, including senior management transfers (from ICICI Bank), shared brand name, and access to the bank’s retail clientele, branch network and infrastructure. The ratings also consider I-Sec’s strong market position in securities broking, its strong retail franchise supported by its position as a bank brokerage house, its track record in the investment banking business, and its healthy financial profile with strong profitability and adequate capitalisation. To diversify its revenue profile, I-Sec has been increasing its secured margin trade funding (MTF) business, which has also resulted in a sizeable uptick in its gearing. Given its competitive borrowing cost, I-Sec has a dominant market position in the MTF business. Further, the increased working capital requirement in the broking business has resulted in higher dependence on borrowings. Depending on market conditions, the MTF book and gearing level are expected to remain elevated compared to the historical average. I-Sec also remains exposed to credit and market risks on account of the MTF lending book, considering the nature of the underlying assets. Further, given the short-term nature of the MTF loan book, short-term borrowings through commercial paper (CP) remain the primary source of borrowing for the company. The ratings also consider the inherent volatility and risks associated with capital market related businesses, the intense competition in the retail equity broking space and the evolving operating and regulatory environment. Nonetheless, the increasing share of non-broking revenues has been aiding the diversification of the revenue profile. Going forward, I-Sec’s ability to continue to ramp up the broking revenues and sustain the net interest income (NII), given the elevated interest rate environment, while ensuring adequate asset quality would be imperative for maintaining its profitability. ICRA takes note of the draft scheme of arrangement for the delisting of I-Sec's equity shares, approved by its board of directors, whereby I-Sec would become a wholly-owned subsidiary of ICICI Bank. The scheme is subject to the receipt of requisite regulatory approvals. The development is unlikely to impact the company’s credit profile.