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, Mauritius and other external investors. Following the equity infusion of about Rs. 2,950 crore during the six-year period ending March 2022, the Group's consolidated net worth stood at about Rs. 4,479 crore with a gearing of 0.7x as on March 31, 2022. Moreover, ICRA notes that the Group plans to maintain prudent capitalisation with a peak gearing of 2-3x over the longer term. 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. 1,545 crore as on March 31, 2022 (Rs. 1,254 crore in DFPL and Rs. 291 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 unsecured 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 March 31, 2022, digital loans constituted 54% of the Group's consolidated loan book of Rs. 6,294 crore, followed by wholesale loans (33%) and affordable housing finance loans (13%). While a higher proportion of digital/retail loans is a positive from a concentration risk perspective, the inherent vulnerabi lity associated with the target borrower profile and the nature of the loans augment 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 digital lending is a relatively newer product for the Group, an improvement was witnessed in the past four years of operations (FY2019-FY2022), and it recorded disbursements of about Rs. 13,500 crore. It is noted that the Group's asset quality indicators improved in FY2022 due to the improved collections and writeoffs. As the DMI Group focusses 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.