Press Release January 16, 2025 RAJASTHAN FINANCIAL CORPORATION Rating Reaffirmed

Product	Quantum (Rs. Cr)	Long Term Rating	Short Term Rating
Bank Loan Ratings	100.00	ACUITE BBB+ | Stable | Reaffirmed	-
Total Outstanding	100.00	-	-
Total Withdrawn	0.00	-	-

Rating Rationale

­Acuité has reaffirmed the long-term rating of ‘ACUITE BBB+, (read as ACUITE triple B plus) on the Rs. 100.00 Cr. bank facilities of Rajasthan Financial Corporation (RFC). The outlook is 'Stable'. Rationale for rating reaffirmation The rating reaffirmation continues to factor in the ownership of Government of Rajasthan and the corporation’s strategic importance for financing of MSME’s for the state. The rating also factors in the moderation in profitability due to increased provisioning by the corporation  The profit after tax of the corporation stood at Rs.1.08  crore for FY24 as against Rs. 24.86 crore for FY23.However, as per the management discussion,there has been recovery from the stressed assets and this provisioning would be reversed in FY25. The rating however remains constrained by the decline in the corporation’s scale of operations and asset quality. The AUM of the company deteriorated to Rs.563.97 crore as on March 31,2024 as against Rs.636.32 crore as on March 31,2023 and Rs. 722.83 crore as on March 31, 2022  respectively. The asset quality of the company also remains weak marked by subdued GNPA at 41.34 percent and NNPA at 20.98 percent as on March 31, 2023.However for FY24, there have been slight improvements in asset quality with the GNPA at 40.88 percent and NNPA at 14.04 percent. Going forward the ability of the corporation to scale up its operations while improving its asset quality and maintain profitability will remain a key rating monitorable.

About the company

­RFC was established in 1955 under the SFCs Act 1951 with an objective of promoting economic growth and rapid industrial development in the state of Rajasthan by extending financial assistance to Micro, Small and Medium Enterprises in manufacturing and service sector. RFC also acts as an agency for disbursal of state and Central Government incentives and subsidies. Government of Rajasthan is the majority stakeholder with 79.83 percent holding as on March 31, 2024 and the balance is held by Small Industries Development Bank of India (SIDBI) and other domestic banks and institutions. The corporation operates wholly in Rajasthan with a network of 14 branches as on March 31, 2024.

Standalone (Unsupported) Rating

Acuite BB+/Stable

Analytical Approach

­Acuite has taken a standalone approach to arrive at rating of RFC and has factored in the operational and managerial support it receives from Government of Rajasthan (GOR) by virtue of being subsidiary of the GoR.

Key Rating Drivers

Strength

­Ownership and support from the Government of Rajasthan RFC is a state finance corporation established under the SFC Act, 1951. Government of Rajasthan (GoR) is a 79.83 percent stakeholder in the corporation and is also expected to support the corporation given its systemic importance to the state. The corporation was established with the objective of promoting economic growth and regional industrial development in the state of Rajasthan. RFC also serves as disbursal agency of various State/Central government subsidies and incentives. The board of directors comprise three directors appointed by the Government of Rajasthan (GoR) and others representing SIDBI, LIC and publicly appointed directors. This indicates a strong level of managerial support from both prominent public sector enterprises and the Government of Rajasthan. RFC’s funding mix comprises equity contribution from GoR and deposits from local authorities. The ownership and the guarantee by the GoR enable RFC to borrow at fine pricing from various banks and institutions. GoR has also extended guarantees for the past bond issuances and bank loan facilities of the corporation. RFC’s capitalisation levels remained adequate at 85.67 percent as on March 31, 2024. The corporation has maintained moderate gearing of 0.44 times as on March 31, 2024 as compared to 0.30 times as on March 31, 2023. Given the linkages with the Rajasthan State Government and RFC’s role in facilitating funding for MSMEs, the corporation plays an important role in the state economy. RFC is a Nodal Agency for several policy initiatives by the State Government of Rajasthan and is responsible to implement the states policy initiatives announced in the annual state budget. The corporation is presently promoting Yuva Udyamita Protsahan Yojana (YUPY) scheme to support young entrepreneurs to put up their industries in the state where GoR provides interest subvention of 6 percent on loans up to Rs.2.0 Cr. Since the support from GoR is critical to the rating, the credit profile of Rajasthan state is of key importance. Movement in the state’s key fiscal metrics i.e. fiscal deficit to GSDP and Debt to GSDP will remain key monitorable. Acuité believes that the corporation will continue to benefit from continued financial and business support from the State Government on an ongoing basis over the medium term.

Weakness

­Deteriorating scale of operations and asset quality  RFC was set up with the objective of promoting economic growth and industrial development in the state of Rajasthan. The corporation’s AUM has seen a sequential decline since 2021. The AUM of the corporation stood at Rs. 563.97 crore as on March 31, 2024 as against Rs. 636.32 crore as on March 31, 2023 respectively. Such deterioration in its AUM is on account of decline in the corporation’s disbursement levels. The disbursement made by the corporation for FY24 stood at Rs. 83.65 crore as against Rs. 101.12 crore in FY23 respectively. The asset quality of the company also continue to remain subdued on account of significant hit from the legacy portfolio (portfolio prior to FY 2000). The corporation does not plan to write-off the legacy NPAs since the portfolio prior to FY 2000 was unsecured; instead RFC plans to continue to recover from these accounts in a phased manner. The GNPA stood at 40.88 percent as on March 31, 2024 as against 41.34 percent as on March 31, 2023. The corporation has made provisions against the sub-standard assets at ~Rs.176 Cr. for FY24 translating to a provision cover of 76.38% as on March 31, 2024 as against 62.33% as on March 31, 2023. The corporation’s scale of operations witnessed a decline and its profitability metrics have seen a decline led by increased provisioning for sub-standard assets together with declining interest expenses on account of repayment of existing debt obligations. Accordingly, the profit after tax of the company declined to Rs.1.08  crore for FY24 as against Rs. 24.86 crore for FY23. Subsequently, the RoAA of the corporation has decreased to 0.17 percent for FY24 as against 3.75 percent for FY23. However, as per the management discussion, part of the sub-standard assets has been settled and recovered by the corporation and the provisions for the same would be reversed in FY25. Going forward, the ability of the corporation to scale up its operations while containing asset quality pressures will remain a key rating sensitivity.

Rating Sensitivity

­ ­Credit profile of Rajasthan State Government and financial support to RFC Movement in asset quality indicators Movement in profitability metrics

Liquidity Position

Adequate

­RFC had adequately matched asset liability profile as on March 31, 2024 with cumulative surplus in all maturity buckets. The Corporation has maintained cash and bank balances & Public Deposit of Rs. 170.53 Cr. with GoR as on March 31, 2024.

Outlook: Stable

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Other Factors affecting Rating

­None

Key Financials - Standalone / Originator

Particulars Unit FY24 (Actual)  FY23 (Actual) Total Assets Rs. Cr. 645.94 601.16 Total Income* Rs. Cr. 55.22 66.09 PAT Rs. Cr. 1.08 24.86 Net Worth Rs. Cr. 374.75 369.87 Return on Average Assets (RoAA) (%) 0.17 3.75 Return on Average Net Worth (RoNW) (%) 0.29 7.00 Debt/Equity Times 0.44 0.30 Gross NPA (%) 40.88 41.34 Net NPA (%) 14.04 20.98 *Total income equals to Net interest income plus other income­

Status of non-cooperation with previous CRA (if applicable):

­Not Applicable

Any other information

­None

Applicable Criteria

• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Public Finance - State Government Ratings: https://www.acuite.in/view-rating-criteria-26.htm

Note on complexity levels of the rated instrument

­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.

Rating History

Date Name of Instruments/Facilities Term Amount (Rs. Cr) Rating/Outlook 19 Oct 2023 Secured Overdraft Long Term 100.00 ACUITE BBB+ | Stable (Reaffirmed) 02 Aug 2022 Secured Overdraft Long Term 100.00 ACUITE BBB+ | Stable (Downgraded from ACUITE A- (CE) | Stable)

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Annexure - Details of instruments rated

Lender’s Name ISIN Facilities Date Of Issuance Coupon Rate Maturity Date Quantum (Rs. Cr.) Complexity Level Rating Punjab National Bank Not avl. / Not appl. Secured Overdraft Not avl. / Not appl. Not avl. / Not appl. Not avl. / Not appl. 100.00 Simple ACUITE BBB+ | Stable | Reaffirmed

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*Annexure 2 - List of Entities (applicable for Consolidation or Parent / Group / Govt. Support)

Sr. No.  Company name 1 Rajasthan Financial Corporation 2 Government of Rajasthan ­

Contacts

Mohit Jain Senior Vice President - Rating Operations Nattasha Venkatesh Associate Analyst - Rating Operations	Contact details exclusively for investors and lenders Mob: +91 8591310146 Email ID: analyticalsupport@acuite.in

About Acuité Ratings & Research

­Acuité is a full-service Credit Rating Agency registered with the Securities & Exchange Board of India (SEBI). The company received RBI Accreditation as an External Credit Assessment Institution (ECAI) for Bank Loan Ratings under BASEL-II norms in the year 2012. Acuité has assigned ratings to various securities, debt instruments and bank facilities of entities spread across the country and across a wide cross section of industries. It has its Registered and Head Office in Kanjurmarg, Mumbai. Disclaimer: An Acuité rating does not constitute an audit of the rated entity and should not be treated as a recommendation or opinion that is intended to substitute for a financial adviser's or investor's independent assessment of whether to buy, sell or hold any security. Ratings assigned by Acuité are based on the data and information provided by the issuer and obtained from other reliable sources. Although reasonable care has been taken to ensure that the data and information is true, Acuité, in particular, makes no representation or warranty, expressed or implied with respect to the adequacy, accuracy or completeness of the information relied upon. Acuité is not responsible for any errors or omissions and especially states that it has no financial liability whatsoever for any direct, indirect or consequential loss of any kind, arising from the use of its ratings. Ratings assigned by Acuité are subject to a process of surveillance which may lead to a revision in ratings as and when the circumstances so warrant. Please visit our website (www.acuite.in) for the latest information on any instrument rated by Acuité. Please visit https://www.acuite.in/faqs.htm to refer FAQs on Credit Rating. Note: None of the Directors on the Board of Acuité Ratings & Research Limited are members of any rating committee and therefore do not participate in discussions regarding the rating of any entity.