Rationale

 To arrive at the ratings, ICRA has taken a consolidated view of DMI Finance Private Limited (DFPL) and DMI Housing Finance Private Limited (DHFPL), referred to as the DMI Group, given the operational linkages between the companies in addition to the common promoter, shared name, and management oversight. The ratings factor in the DMI Group's consistent track record of strong capitalisation, aided by regular equity infusions by the promoter i.e. DMI Limited and other external investors. Following the equity infusion of about Rs. 2,950 crore during the sixyear period ending December 2021, the Group's consolidated net worth stood at about Rs. 4,348 crore with a consolidated gearing of 0.6x as on December 31, 2021. Moreover, ICRA notes that over the longer term, the Group plans to maintain prudent capitalisation with a peak gearing of 2-3x. The ratings also draw comfort from the Group's track record of strong liquidity supported by low leverage and sizeable on-balance sheet liquidity. Moreover, a considerable portion of the loan book has a residual tenor of up to one year, which supports the overall liquidity profile. The available on-balance sheet liquidity of about Rs. 2,007 crore as on December 31, 2021 (Rs. 1,680 crore in DFPL and Rs. 327 crore in DHFPL) is more than sufficient to take care of the debt-servicing obligations falling due in the next one year. ICRA has taken cognizance of the Group's moderate profitability indicators and the rising share of digital loans (small-ticket personal/consumption retail loans) in the overall portfolio mix. The foray into digital loans and affordable housing loans has led to improved granularity of the portfolio, which, in the past, was characterised by concentrated wholesale exposures primarily to real estate builders. As of December 31, 2021, digital loans constituted 49% of the Group's consolidated loan book of Rs. 5,358 crore, followed by wholesale loans (36%) and affordable housing finance loans (15%). While a higher proportion of digital/retail loans is a positive from a concentration risk perspective, the inherent vulnerability associated with the target borrower profile and unsecured nature of loans augments the portfolio vulnerability. Nevertheless, ICRA draws comfort from the Group's systems and processes and expects it to report good risk-adjusted returns over the medium term. Further, while the Group has a relatively shorter track record of operations in the digital lending segment, an improvement has been witnessed with four years of operations and disbursements of over Rs. 11,000 crore. It is noted that the Group's asset quality indicators improved in 9M FY2022 due to the restructuring of loans and write-offs. As DMI Group focuses on increasing the share of digital loans that are not backed by first loss default guarantee (FLDG) arrangements with its partners, the Group's ability to manage slippages will remain a monitorable. Overall, the Group's ability to improve the profitability indicators from the current levels and grow the business while maintaining the underwriting standards and controlling the credit costs would be a key monitorable. At the same time, the ability to diversify the funding mix would be critical to grow the business. As for DHFPL, ICRA notes that the company's scale of operations is modest on a standalone basis with assets under management of Rs. 811 crore as on December 31, 2021.