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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 15.00 | ACUITE A- | CE | Stable | Assigned | Provisional To Final | - |
| Total Outstanding Quantum (Rs. Cr) | 15.00 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has converted from provisional to final, and assigned the long term rating of ‘ACUITE A- (CE)’ (read as ACUITE A minus (Credit Enhancement)) on the Rs.15.00 Cr. partially credit enhanced bank loan facilities of SAVE Microfinance Private Limited (SMPL). The outlook remains ‘Stable’.
The rating continues to factor in experienced management team with diversified experience as well as adequate liquidity, growth in AUM, earning metrics and healthy asset quality. The rating further factors in the support from SAVE group through regular equity infusion. The rating also factors in SMPL’s moderate capitalisation levels at 21.18% as on March 31, 2022 and its high geographical concentration. Going forward, SMPL’s ability to improve earnings profile, strengthen its capitalization levels while growing portfolio and maintaining asset quality would be key monitorables. The transaction has Partial Credit Enhancement (PCE) in the form of unconditional, irrevocable, payable on demand guarantee by Northern Arc (Credit Enhancer/ Guarantor) covering 15% of the initial principal value of the facility amount. The level of guarantee as a percentage of the aggregate outstanding principal of the facility is capped at 25%. Additionally, the facility has security in the form of exclusive first charge on identified book debts and receivables with 110% margin in favour of the lender. SMPL shall make payments of interest and principal amounts due along with all other obligations (if any) under the Facility Documents by T-5 business days. In case of non-payment by SMPL, the Guarantors shall be severally and jointly liable to make the payments by the due date. In case of non-payment by the Borrower and the Guarantors as stipulated above, the Collection and Payment Agent shall on T-3 Business Days invoke the PCE and send a notice of 2 (Two) Business Day to the Credit Enhancer to make payments. Credit Enhancer shall make payment on T-1 Business Day (i.e. one day prior to the interest or principal due date) into the Collection and Payment Account. The final rating is assigned based on the fulfilment of the structure, terms and covenants detailed in the executed trust deed, deed of guarantee, legal opinion, debenture trust agreement, deed of hypothecation and other documents relevant to the transaction. |
| About the company |
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SAVE Micro Finance Pvt Ltd (SMPL) is a NBFC-MFI, which started its operations in 2017, with its registered office at Delhi and headquartered at Gaya (Bihar).. It is a 100% subsidiary of SAVE Solutions Private Limited (SSPL). It operates through Joint liability group (JLG) lending methodology and provides micro-credit services to women entrepreneurs exclusively for Income generating activities such as small business, handicrafts, trade and services, agricultural and allied activities. SMPL leverages on SAVE’s wide network of CSPs (Customer Service Points) to provide both cash-in & cash-out at the door step of these women microentrepreneur’s.
SMPL’s AUM as on March 31, 2022 stood at Rs. 513.20 cr. (Rs. 201.48 cr. as March 31, 2021). The AUM comprised of owned portfolio of Rs. 472.75 cr. (92.12 percent of AUM) and managed portfolio of Rs. 40.45 cr. (7.88 percent of AUM) as on March 31, 2022. |
| About the Group |
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Society for Advancement of Village Economy (SAVE) was founded by Mr. Ajeet Kumar Singh, Mr. Ajay Kumar Sinha and Mr. Pankaj Kumar. to socially develop the rural population of Bihar, Jharkhand, Uttar Pradesh (UP), Odisha and Chhattisgarh. Later, it was converted into a private limited company as SSPL to provide basic banking and financial services particularly in rural parts of the country. The founders of SAVE are the promoters of SSPL holding 19.6% stake each in the company. Denmark based Maj Invest Financial Inclusion Fund III has acquired 21.8% stake in the organization and Agrif Cooperatief UA, holds 17.2% stake in SSPL. The rest stakes of SSPL are held by SAVE Solutions Employees Welfare Trust. The promoters have extensive experience in the banking and financial services space with particular expertise in rural banking domain supported by well experienced senior management team. Through a robust network of more than 10000+ Customer Service Points (CSPs), SSPL aims to provide endto-end banking services to rural India with an objective of inclusive growth.
In order to further expand the operations and foray into the related segments, SSPL has floated two wholly owned subsidiaries SFSPL which is an NBFC engaged in extending Loan Against property (LAP) and Small Ticket size Individual Loans (STIL) and SMPL which is an NBFC-MFI extending small ticket Joint Liability Group loans (JLG) loans. The company was also able to acquire a Housing Finance Company, New Habitat Housing Finance and Development Limited in FY2022 |
| About the Guarantor |
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Northern Arc, previously known as IFMR Capital Finance Ltd., is a Non-Deposit taking NonBanking Financial Company (ND-NBFC) incorporated in 1989. It is involved in the placement (arranging funding for its clients via loan syndication, securitisation and assignment among others) and lending business. The company acts as a link between mainstream capital markets investors and highquality last mile lending institutions and businesses. The company’s business is categorized as finance sector exposure, i.e., microfinance, affordable housing finance, commercial vehicle finance, consumer finance, agri-finance and small business loans, and non-finance sector exposure, i.e., mid-market finance and corporates.
Northern Arc reported Assets Under Management (AUM) of Rs. 6874 Cr. as on March 31, 2022, as against Rs. 5,220.87 Cr. as on March 31, 2021. Northern Arc’s asset quality improved with GNPA (90+dpd) at 0.51% as on March 31, 2022 as against 2.23% as on March 31, 2021. The company’s Profit After Tax (PAT) stood at Rs. 163.73 Cr for the period ending FY2022 (Rs. 67.51 Cr as of FY2021). The company’s debt/equity ratio was 2.53 times as on March 31, 2021 as compared to 1.96 times as on March 31, 2020. However, the debt/equity ratio increased to 3.50 times as on March 31, 2022. |
| Analytical Approach |
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Acuité has considered the standalone business and financial risk profile of SMPL, the rating of SMPL (ACUITE BBB/ Stable), and has further factored in the credit enhancement arising from the structure. The suffix (CE) indicates credit enhancement arising from the PCE in the form of unconditional, irrevocable, payable on demand guarantee covering 15% of the initial principal value of the facility amount. The strength of the underlying structure and continued adherence to the same is central to the rating. Accounting for the Partial Credit Enhancement, the agency has enhanced the rating of the facility to ACUITE A- (CE)/ Stable. The Credit Enhancement (CE) in the rating is solely for the rated issue and its terms and structure.
The notched up rating of the loan facility incorporates the PCE in the form of guarantee by Northern Arc Capital Limited (“Northern Arc”), acting as the Credit Enhancer/ Guarantor. Standalone Rating without CE support : Acuite BBB/Stable |
Key Rating Drivers
| Strength |
| Strength of the underlying structure
The Credit Enhancer shall provide PCE, favouring SMPL in the form of an unconditional, irrevocable guarantee that covers 15% to the extent of Guarantee Cap guaranteeing the repayment of principal and payment of interest amounts in relation to the facility. If due to the amortisation of the facility, the credit enhancement percent becomes greater than 25% of the aggregate outstanding principal of the facility, the Guarantee Cap shall be reduced to 25% of the aggregate outstanding principal of the facility (Revised Guarantee Cap). Borrower shall make payments of interest and principal amounts due and payable under the Facility Agreement into the Collection and Payment Account, opened and maintained by the Collection and Payment Agent by 4 PM IST, 5 (five) Business Days prior to due date (i.e., T5 Business Days). In case of non-payment by Borrower as stipulated above, Collection and Payment Agent shall on the same day, i.e., on the T-5 Business Day invoke the guarantees extended by the Guarantors and require the Guarantors to pay such amounts by 4 PM IST, 4 (four) Business Days prior to due date (i.e., T-4 Business Days) and Guarantors shall be jointly and severally liable to make such payment within the said timeline. In case of non-payment by the Borrower and the Guarantors as stipulated above, the Collection and Payment Agent shall on T-3 Business Days invoke the PCE and send a notice of 2 (Two) Business Day to the Credit Enhancer to make payments.Credit Enhancer shall make payment on T-1 Business Day (i.e. one day prior to the interest or principal due date) into the Collection and Payment Account. The facility has security in the form of exclusive first charge on identified book debts and receivables with 110% margin in favour of the lender. The security cover will be met from the date of disbursal of the facility. In case of SMPL senior secured long term rating (as per Acuité view) downgrade to below BBB the Borrower shall transfer the collections from the Hypothecated Property to the Collection and Payment Account on a weekly basis and such collections would be applied by the Collection and Payment Agent towards repayment of principal and interest due and payable in relation to the Facility and then towards accelerated payment of principal on the Facility Acuité believes that the structure provides for adequate covenants to safeguard the interest of the lender. The lender has enough buffers available to initiate corrective action and mitigate the risks arising out of non-adherence to the terms and conditions. Experienced management and support from SAVE group SAVE Micro Finance Pvt Ltd (SMPL) is a NBFC-MFI, which started its operations in 2017, with its registered office at Delhi and headquartered at Gaya (Bihar).. It is a 100% subsidiary of SAVE Solutions Private Limited (SSPL). Mr. Ajeet Kumar Singh, current CEO and Director is also one of the Co-founders of SAVE. Having experience in rural marketing strategy related to farm equipment and diverse experience in financial service and banking sector, he has been instrumental in establishing alternative banking Channel in 28 States of India for SAVE.. Mr. Pankaj Kumar, Director and Co-founder, brings in nearly two decades of comprehensive experience in Financial Service Industry. Mr. Ajay Kumar Sinha, Director and Co-founder, have almost two decades of experience in financial services industry, banking and Insurance industry. Mr. Siva Vadivelazhagan, Nominee Director, brings in his experience in corporate finance, investment management and financial inclusion. The promoters are supported by Mr. Gourav Sirohi, CFO, having more than a decade of experience in Treasury, Financial Audit , Company law Matters , Information System Audit and Valuation. Mr. Indrajit Kumar, Business Head, brings nearly two decades of expertise of working with Satin Creditcare Network and NABARD Financial Services Ltd. SMPL’s AUM as on March 31, 2022 stood at Rs. 513.20 cr. (Rs. 201.48 cr. as March 31, 2021). The AUM comprised of owned portfolio of Rs. 472.75 cr. (92.12 percent of AUM) and managed portfolio of Rs. 40.45 cr. (7.88 percent of AUM) as on March 31, 2022. The profitability of the company also increased along with the growth in AUM as the PAT levels improved to Rs.3.54 Cr as on March 31, 2022 from Rs. 0.50 Cr. On march 31, 2021. ROA improved to 0.87% in FY2022 from 0.30% in FY2021. The company is also supported by regular capital infusions by SAVE group as evident from ~Rs. 22.00 Cr and ~Rs. 75.00 Crs. infusions in FY2021. Healthy Asset Quality The prudent policies by the management have helped SMPL in maintain healthy asset quality. The GNPA (90+) reduced to 1.26% in March 31, 2022 from 2.14% as on March 31, 2021. The provision coverage stood at ~79% as on March 31, 2022. Moreover, ~99% of the portfolio is on time. Acuité believes, going forward, the ability of the company to maintain the asset quality while increasing the portfolio will be a key rating monitorable. |
| Weakness |
| Moderate Capitalisation Level
The Capital Adequacy Ratio of SMPL stood at 21.18% as on March 31, 2022 as against 53.90% in March 31, 2021. The company’s debt increased to ~Rs. 430.74 Cr. as on March 31, 2022 from Rs.127.50 Cr on March 31, 2021 which led to an increase in gearing to 3.71 times as on March 31, 2022 from 1.13 times in March 31,2021. Geographical Concentration SMPL’s portfolio is highly concentrated in Bihar with ~56% of the portfolio originating from there followed by ~16% from Uttar Pradesh. It makes SMPL vulnerable to policy changes and/or any other changes in the region affecting the business. Acuité believes that improving the capitalization levels and expanding the business while maintaining the growth in earning profile will be crucial. |
| Assessment of Adequacy of Credit Enhancement |
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SAVE has significant experience in the financial services industry and SMPL has healthy asset quality along with adequate liquidity. Thus Acuité believes that the CE will stand adequate in all scenarios and in the event of any requirement, Northern Arc will provide the necessary support.
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| Rating Sensitivity |
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| Material Covenants |
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SMPL is subject to covenants stipulated by its lenders/investors in respect of various parameters like capital structure, asset quality, among others.
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| Liquidity Position |
| Adequate |
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SMPL’s overall liquidity profile remains adequate with no negative cumulative mismatches in near to medium term as per ALM dated June 30, 2022. The company has cash and bank balances to the tune of Rs. 53.04 Cr. as of August, 2022 and is in talks with new and existing lenders to further aid its disbursements and liquidity.
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| Outlook : Stable |
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Acuité believes that the SMPL will maintain a ‘Stable’ outlook over the medium term supported by future capital infusions and expansion process. The outlook may be revised to ‘Positive’ in case of significant and sustainable growth in its AUM while maintaining profitability, asset quality and capitalization indicators. Conversely, the outlook may be revised to ‘Negative’ in case of challenges in attaining optimal captital support or significantly higher than expected pressure on asset quality or profitability margins.
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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): |
| None |
| Any other information |
| None |
| Applicable Criteria |
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• Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Complexity Level Of Financial Instruments: https://www.acuite.in/view-rating-criteria-55.htm • Default Recognition: https://www.acuite.in/view-rating-criteria-52.htm • Explicit Credit Enhancements: https://www.acuite.in/view-rating-criteria-49.htm • Non-Banking Financing Entities: https://www.acuite.in/view-rating-criteria-44.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 levelsof risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in
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