Rationale

The rating action factors in the improvement in the credit profile of the parent [Spandana Sphoorty Financial Limited {SSFL; upgraded to [ICRA]A+ (Stable) from [ICRA]A (Positive)} holding 99.90% equity stake in Criss Financial Limited (Criss)}. Criss shall play a critical part in SSFL’s diversification plan for the new non-microfinance institution (MFI) business segments, i.e. microloan against property (LAP) and nano enterprise loans. The company’s current loan book, which largely comprises nonqualifying microfinance loans, is expected to shift to the above-mentioned segments. Criss shall continue to benefit from managerial, capital, and liquidity support from its parent; SSFL has extended a line of credit (current limit of Rs. 400 crore) and corporate guarantees for Criss’ borrowings. Criss currently has an adequate capital profile, with a net worth of about Rs. 288 crore and a managed gearing of 1.7 times as on March 31, 2024, supported by the equity infusion of Rs. 100 crore by SSFL in FY2024. Criss is expected to grow its portfolio to around Rs. 3,000-3,500 crore by FY2028, which would require timely capital infusions from SSFL to maintain the capitalisation profile. Criss’ earnings profile improved with the return on managed assets (RoMA) at 4.9% in FY2024 compared to 0.3% in FY2023. Its profitability has been supported by the improvement in the asset quality; credit costs, as a percentage of the average managed assets (AMA), stood at 2.4% in FY2024 (9.0% in FY2023 and 3.3% in FY2022). The company’s 0+ and 90+ days past due (dpd) improved to 6.0% and 2.5%, respectively, as of March 2024 from 8.0% and 3.5%, respectively, as of March 2023 (30.3% and 8.7%, respectively, as of March 2022). The ratings continue to consider Criss’ small scale of operations, with the portfolio largely concentrated in two states, namely Andhra Pradesh (AP; 70.5% of the portfolio as of March 2024) and Telangana (23.5%), accentuating the risks associated with geographical concentration. The underlying credit risk profile of the end borrowers is also modest. Given the significant targeted growth and the focus on newer loan segments over the medium term, Criss’ ability to control the asset quality on a sustained basis shall remain a monitorable. The Stable outlook factors in ICRA’s expectation of continued managerial and financial support from SSFL, which would aid its risk profile, as its scales up its operations in the near-to-medium term.