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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Non Convertible Debentures (NCD) | 3000.00 | ACUITE AA | Reaffirmed | Rating Watch with Negative Implications | - |
| Commercial Paper (CP) | 50.00 | - | ACUITE A1+ | Reaffirmed | Rating Watch with Negative Implications |
| Total Outstanding | 3050.00 | - | - |
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Rating Rationale |
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Acuite has reaffirmed its long-term rating of ACUITE AA (read as ACUITE double A) on the Rs. 3000 Cr. Non-Convertible Debentures facility* of IIFL Samasta Finance Limited (IIFL Samasta). The rating is now under watch with Negative Implications.
*Out of the Rs. 3000 Cr. NCD facility, Rs. 1487.98 Cr. are proposed to be a public issue. Acuite has reaffirmed its short-term rating of ACUITE A1+ (read as ACUITE A one plus) on the Rs. 50.00 Cr. Proposed Commercial Paper of IIFL Samasta Finance Limited. The rating is now under watch with Negative Implications. Rationale for rating The rating watch with negative implications is on account of material supervisory concern raised by RBI as it asked IIFL Finance to stop giving fresh gold loans with immediate effect. The decision was taken considering the discrepancies observed by the regulator on the assessment of the purity of gold at the time of sanction and at the time of auction, which would have bearing on the Loan to Value threshold. The subsequent observations were the auctions not being done at Taluka level and the cash disbursements exceeding Rs 20,000 limit. As per the management, the company has submitted their written response to the regulator against these observations along with the measures to be adapted to rectify such discrepancies in the future.Acuité has discussed the issue with the management and is in touch to understand further developments. Acuité will keep on monitoring the same for its implications on the operational and financial performance of the company. The rating continues to derive strength from IIFL Samasta’s strong parentage through IIFL Finance Limited (IIFL Finance), the NBFC-MFI (Samasta) is a 99.51 percent subsidiary of the parent company, and expectations of continued support going forward. By virtue of majority ownership, IIFL Samasta also enjoys significant managerial and financial synergies with IIFL Finance group. The rating further derives strength from IIFL Samasta’s strategic importance for the parent company given that the NBFC-MFI arm provides business & revenue diversification. Acuite also takes cognizance that the promoter will maintain majority ownership in IIFL Samasta Finance Limited. The parent company IIFL Finance Limited (Listed) has a total networth of ~Rs. 10,202 Crore and a market cap of over Rs. 17,755 Crore as on March 31, 2023. The rating also takes into consideration the significant growth in IIFL Samasta’s assets under management (AUM) over the last year, leading to improved and healthy profitability metrics. The company’s loan portfolio outstanding as on March 31, 2023 grew significantly to Rs. 10,552.24 Cr. as compared to Rs. 6,483.84 Cr. as on March 31, 2022 and has reported PAT of Rs. 128.18 Cr. as on March 31, 2023 as against Rs.50.60 Cr. as on March 31, 2022. Further, the loan portfolio outstanding increased to Rs. 11, 072.31 Cr. and reported PAT of Rs. 91.60 Cr. during Q1FY2024. The rating also factors in company’s sound asset quality and robust risk management practices. IIFL Samasta reported gross nonperforming assets (GNPA) of 2.11 percent as on June 30, 2023. The rating is however constrained by concentration of loan portfolio in the top 4 states (Bihar, Tamil Nadu, Karnataka and Rajasthan) comprising ~60 percent of the AUM and susceptibility to risks inherent to microfinance segment. |
| About the Company |
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IIFL Samasta started operations in March 2008. The Company aims at helping customers with income generating activities and working capital requirements. IIFL Finance acquired significant stake in Samasta in fiscal year 2017. As on June 30, 2023, Samasta had a presence in 21 states, catering to more than 34 lakh customers through a network of 1,352 branches spread across 363 districts.
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| About the Group |
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IIFL Finance Limited is the listed holding company of the IIFL Finance group and is registered as a systemically important non-deposit-taking, non-banking financial company. The group offers various retail lending products, including gold loans, home loans, LAP, business loans and microfinance loans which are the core segments and form 93% of the AUM while the rest comprises capital market-based lending (margin funding and loans against shares) and construction and developer finance.
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| Unsupported Rating |
| Not Applicable |
| Analytical Approach |
| Extent of Consolidation |
| •Full Consolidation |
| Rationale for Consolidation or Parent / Group / Govt. Support |
| Acuite has consolidated the business and financial risk profiles of IIFL Finance Limited (Parent Company) and its subsidiaries, including IIFL Home Finance Limited and IIFL Samasta Finance Ltd (IIFL Samasta). This consolidation is in the view of the common promoters, shared brand name and strong financial and operation synergies.
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| Key Rating Drivers |
| Strength |
| Promoter support and synergies arising from association with IIFL Finance Group
Samasta is supported by the managerial, and the financial synergies of the group. IIFL Group made a strategic investment in IIFL Samasta Finance Limited, and the Group shall continue to hold a controlling stake in the business. The credit profile of Samasta derives significant financial flexibility as a part. Samasta has been receiving periodical support from its promoters over the years. IIFL Group had infused a total capital of ~Rs. 200 Cr. during Q4FY23. Furthermore, Samasta is expected to receive funding support from the group to support the expansion of its business operations. It also has representatives on the board from IIFL group. Acuite believes that the microfinance business is strategically important for IIFL group and it helps diversify the financial product suite of the parent and expand its presence in the financial inclusion space. Also, the microfinance business is scalable, and is expected to grow moderately over the medium term. Adequate Earnings Profile At IIFL Finance group level, the revenue streams comprise of IIFL Finance Limited (Parent Company) and its subsidiaries IIFL Home Finance Limited and IIFL Samasta Finance Limited. The parent company along with IIFL Home Finance Limited contributed ~90 percent towards the bottom-line in FY2023. On a consolidated level, the IIFL group reported a profit of Rs. 1,607.55 Cr. as on March 31, 2023 improving from Rs. 1,188.25 Cr. as on March 31, 2022. On a standalone basis, Samasta’s profitability indicators were healthy marked by Net Interest Margin (NIM) which stood at 14.17 percent as on March 31, 2023. The NBFC-MFI reported a PAT of Rs 128.18 Cr. as on March 31, 2023 vis-à-vis Rs 50.60 Cr. as on March 31, 2022. Samasta reported a PAT of Rs. 91.60 Cr during Q1FY24. IIFL Samasta’s loan portfolio has grown steadily owing to healthy disbursement levels. The company’s overall disbursement remained healthy, the disbursement stood at Rs. 10,213.76 Cr. as on FY2023 as compared to Rs. 6,483.84 Cr. as on FY2022. Acuité believes that the ability of the company to sustain the improved levels of earnings profile would be a key monitorable. Significant AUM growth while maintaining sound asset quality IIFL Samasta’s loan portfolio outstanding as on March 31, 2023 grew significantly to Rs.10,552.24 Cr. as compared to Rs. 6,483.84 Cr. as on March 31, 2022. The loan portfolio outstanding further grew to Rs. 11,072.31 Cr. as on June 30, 2023. The loans have an average tenure ranging upto 24months. IIFL Samasta has demonstrated sound asset quality, as reflected in the Gross NonPerforming Assets (GNPA) of 2.11 percent and NNPA of 0.62 percent as on June 30, 2023. The company has structured inherent checks for effective risk management that include lending policy, underwriting process and dedicated due diligence team, which helps to maintain asset quality. The company’s collection efficiency for current month due averages above 95 percent for last 6 month ended June 30, 2023, resulting to an ontime portfolio of 95.50 percent as on June 30, 2023. Acuite believes that the ability of the company to grow its loan portfolio while maintaining asset quality will be key monitorable. |
| Weakness |
| Geographic concentration in operations
IIFL Samasta has its operations spreads across 21 states spanning 363 districts through its network of 1,352 branches as on June 30, 2023. The company has added 460 branches during FY2023. Despite the expansion geographic concentration of loan portfolio was seen in the top 4 states (Bihar, Tamil Nadu, Karnataka and Rajasthan) comprising ~60 percent of the AUM. IIFL Samasta has been gradually reducing its exposure to geographic concentration with addition of new branches in different districts and venturing in new states. Acuité believes that containing additional slippages while maintaining the growth in the loan portfolio and reducing geographic concentration will be crucial. Susceptibility to risks inherent to microfinance segment IIFL Samasta Finance Limited primarily extends unsecured loans to economically challenged borrowers who have limited ability to absorb income shocks. Since financial assistance to economic challenged borrowers is a sensitive issue, from government standpoint the regulatory dispensation in respect of the policies becomes relevant. Any changes in the regulatory environment impeding the ability of entities like IIFL Samasta to enforce collections, etc will have an impact on its operational performance. Besides the regulatory risks, the inherent nature of the business renders the portfolios vulnerable to event risks such as natural calamities in the area of operations. |
| ESG Factors Relevant for Rating |
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IIFL Finance is the listed holding company of the IIFL Finance group and is registered as a systemically important non-deposit-taking, non-banking financial company. Some of the material governance issues for the financial services sector are policies and practices with regard to business ethics, board diversity and independence, compensation structure for board and KMPs, role of the audit committee and shareholders’ rights. On the social aspect, some of the critical issues for the sector are the contributions to financial inclusion and community development, responsible financing including environmentally friendly projects and policies around data privacy. The industry, by nature has a low exposure to environmental risks. The entity maintains adequate transparency in its business ethics practices as can be inferred from the entity’s disclosures regarding related party transactions, vigil mechanism and whistle blower policy. The board of directors of the company comprise of 8 directors out of which 4 are independent director. The audit committee is with the objective to monitor and provide an unbiased supervision of the management’s financial reporting process. IFL also maintains transparency in terms of disclosures pertaining to interest rate policy and its adherence to Fair Practice Code as disseminated by Reserve Bank of India's circular. It continues to work on several community development initiatives and has also developed a social performance management system to facilitate financial stability of its staff and clients. In digitalization, the Company promotes technology that encapsulates the entire MFI operations of the company on Application Service Provider model.
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| Rating Sensitivity |
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| Liquidity Position |
| Adequate |
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IIFL Samasta Finance Limited’s liquidity profile is adequate with no cumulative mismatches in individual buckets up in near to medium term based on the ALM statement as on June 30, 2023. Further, the company has cash and cash equivalents of Rs. 227.11 Cr. as on March 31, 2023. Additionally, IIFL Finance will provide timely fund support for servicing of debt if needed.
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| Outlook: Not Applicable |
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| Other Factors affecting Rating |
| None |
| Key Financials - Standalone / Originator | ||||||||||||||||||||||||||||||||||||||||
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| Status of non-cooperation with previous CRA (if applicable) |
| Not applicable |
| Any Other Information |
| None |
| Applicable Criteria |
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• Non-Banking Financing Entities: https://www.acuite.in/view-rating-criteria-44.htm • Banks And Financial Institutions: https://www.acuite.in/view-rating-criteria-45.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Consolidation Of Companies: https://www.acuite.in/view-rating-criteria-60.htm |
| Note on Complexity Levels of the Rated Instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in.
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| *Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support) | |||||||||||||||
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