Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Adequate capitalisation, supported by multiple capital raises: The Edelweiss group has demonstrated its ability to raise capital from global investors across businesses. The group has raised ~Rs 6,000 crore since 2016 across lending, wealth management and asset management businesses. This has helped the group to maintain its capital position despite elevated credit costs and absorb asset-side risks. As on March 31, 2025, the group’s networth stood at Rs 5,918 crore as against Rs 6,309 crore as of March 31, 2024 (Rs 8,581 crore as on March 31, 2023). The decline in networth in fiscal 2025 is attributed to a strategic mark down in the security receipts (SR) book. Previously, the reduction in networth was due to the distribution of ~30% of Nuvama’s networth to EFSL shareholders as part of the demerger.

Furthermore, the net worth decreased to Rs 5,774 crore as of June 30, 2025, primarily due to dividend distributions in asset reconstruction business and hardening of yields resulting in some investment losses in their insurance business.

The group’s gearing stood at 3.02 times (excluding CBLO[1], 2.6 times) as on March 31, 2025, compared with 3.2 times (excluding CBLO, 2.9 times) as on March 31, 2024 (2.4 times as on March 31, 2023, and 2.5 times as on March 31, 2022). It increased to 3.2 times (excluding CBLO 2.7 times) as on June 30, 2025. With a growing focus on fee-based businesses and a strategy to grow in the credit business through an asset-light model, the incremental debt requirements are expected to be low. In addition to the stake sale in Nuvama, the group plans to divest stake in alternative assets (for which the DRHP will be refiled with SEBI) and in its mutual funds business, for which a deal has been secured with Westbridge Capital for a 15% stake sale, subject to regulatory approvals. Furthermore, the group expects to undertake stake sales in housing and potentially in their insurance businesses, which will further facilitate capital unlocking and debt reduction.

Demonstrated ability to build significant competitive position across businesses: The Edelweiss group is a diversified financial services conglomerate with a presence across four key verticals: credit (wholesale and retail), insurance (life and general), asset management, and asset reconstruction. Having established a leading position in the alternative assets and asset reconstruction businesses, the group is now focused on expanding its market share in other segments, which is expected to contribute to greater earnings stability over time.

The asset management business encompasses both mutual fund and alternative asset operations. As a prominent player in the alternative asset space, the group has consistently demonstrated growth in its mutual fund assets under management (AUM). Notably, the asset management AUM increased to Rs 2,15,170 crore as of June 30, 2025, from Rs 2,01,440 crore as of March 31, 2025, and Rs 1,81,700 crore as of March 31, 2024.

In the distressed assets segment, Edelweiss Asset Reconstruction Company (EARC) maintains a good market position as one of the largest private asset reconstruction companies (ARC) in India. As of December 31, 2024, the company managed total securities receipts worth Rs 27,850 crore, compared to Rs 31,590 crore as of March 31, 2024, and Rs 37,100 crore as of March 31, 2023. However, EARC's AUM decreased to approximately Rs 14,717 crore as of March 31, 2025, following the write-off of its 5:95 portfolio, which had completed over eight years. The AUM further declined to Rs 12,267 crore as of June 30, 2025.

Having previously focused primarily on wholesale clients, EARC is now shifting its attention to the retail and MSME segments. The company expects the share of retail and MSME assets to increase over the medium term.

In the lending business, the group is prioritizing growth in the retail segment through an asset-light, co-lending model, while simultaneously running down its wholesale book. The primary focus areas for retail credit growth are mortgage and MSME loans. To achieve this, the group has established partnerships with several co-lending partners, comprising large domestic and foreign banks, to offer retail products across both priority and non-priority sector portfolios.

Although the retail AUM gained momentum in fiscal 2024, growth has been relatively modest due to delays in operationalizing the onboarding and underwriting processes with co-lending partners. Furthermore, the regulatory embargo has had a residual impact on growth across the lending businesses. As a result, after reaching an AUM of Rs 5,368 crore as of March 31, 2024, up from Rs 4,879 crore as of March 31, 2023, the retail AUM remained relatively stable at Rs 5,378 crore as of March 31, 2025, and Rs 5,345 crore as of June 30, 2025. The wholesale loan book stands at Rs 1,093 crore as on June 30, 2025, down from Rs 1268 crore, a year ago.

The group also houses the life and general insurance businesses, which are gaining scale and are expected to break even by FY27 and FY26 respectively.

However, divestment of majority stakes in some of the businesses of the group may reduce the diversity of business risk profile.

Weaknesses:

Subdued profitability for current size and scale considering presence in multiple businesses: The group’s profitability is lower than that of other large, financial groups, but most of its businesses have consistently reported profits since the last quarter of fiscal 2021.

In fiscal 2025, the group reported a profit after tax (PAT) of Rs 536 crore, marginally higher than the PAT of Rs 528 crore in fiscal 2024. The return on assets (RoA) improved to 1.3% from 1.2% during the same period. In the first quarter of fiscal 2026, the group posted a PAT of Rs 103 crore with an RoA of 1.0%, compared to a PAT of Rs 85 crore and an RoA of 0.8% in the corresponding quarter of the previous fiscal.

Although the group's overall profitability is still impacted by losses in the insurance businesses, the losses have been gradually decreasing, and the entities are expected to break even within the next 1-2 fiscals.

However, the corporate segment which comprises eleven entities of the group and is engaged in investments, corporate services, merchant banking, technology services, portfolio management services, and trading, continues to report intermittent quarterly losses. These losses can be attributed to the high interest costs associated with the debt within these entities. This debt accounts for a significant proportion of the group’s total gross debt (55% of gross debt, excluding CBLO, as of June 30, 2025). The event based gains in this segment can offset these losses, as and when these gains happen. On a full year basis, in past three fiscals, the maximum loss incurred in the segment has been ~Rs 51 crore.

PAT of operating businesses stood at Rs 179 crore for first quarter of fiscal 2026 as compared to Rs 145 crore in the corresponding period of the previous fiscal (Rs 566 crore and Rs 458 crore as on March 31, 2025 and March 31, 2024 respectively).

Of the various businesses, the asset reconstruction and asset management businesses, mainly alternative assets, remain the largest contributors to overall profitability (forming 90% of the overall PAT[2] for fiscal 2025). Notably, EARC’s profitability was supported by healthy redemptions even as there were nil acquisitions during the embargo period. However, the profitability of the credit business remains impacted due to slow growth.

Looking ahead, the alternate assets business is expected to continue supporting profitability.

However, any additional provisioning required on the monitorable book based on the pace and extent of recovery from underlying assets will need to be closely monitored. Furthermore, the group’s ability to scale up its retail lending business while managing overall credit costs, as well as reduction in the corporate debt and associated costs will be crucial over the medium term and will remain a key area of focus.

Asset quality monitorable with elevated level of monitorable portfolio: The overall gross stage III assets in the lending business of the group stood at Rs 426 crore (8.4% of loans) as compared to Rs 416 crore (7.9% of loans) as on March 31, 2025, Rs 720 crore (13.0%) as on March 31, 2024, Rs 794 crore (10.5%) as on March 31, 2023 and Rs 930 crore (8.9%) as on March 31, 2022. Retail book gross stage III assets were reported at Rs 115 crore (2.7%) as on June 30, 2025 as against Rs 105 crore (2.3%) as on March 31, 2025, Rs 78 crore (1.84%) as on March 31, 2024, and Rs 124 crore (3.3%) as on March 31, 2023. The headline metrics also remain elevated also on the back of a declining loan book.

The group has been consciously running down the wholesale portfolio through various modes. While recoveries have contributed to this, the reduction has been primarily due to sell-down to ARCs (both internal and external) and alternative investment funds (AIFs) in earlier periods.

The Edelweiss group has retained risks and rewards on a large portion of this and hence, Crisil Ratings tracks the monitorable portfolio to assess the asset quality of the group. This includes gross stage III accounts in the lending book (Rs 426 crore), security receipts held by the group (including those in EARC) related to sell down transactions (Rs 6,044 crore) and loans sold down to AIFs (Rs 1,106 crore). As of June 30, 2025, the overall monitorable portfolio stood at Rs 7,576 crore as marginally lower than Rs 7,724 crore as on March 31, 2025. Although, the monitorable portfolio has decreased from Rs 12,097 crore as on March 31, 2022 (and Rs 11,383 crore as on March 31, 2021), it remains at an elevated level. Crisil Ratings notes that while majority of this monitorable portfolio represents on-book exposure of the Edelweiss group, a portion of it pertains to exposure of external ARC or AIF wherein the group has extended a put option.

The group has made provisions to the tune of 45% against the outstanding monitorable portfolio resulting in a net monitorable portfolio of Rs 4,153 crore as on June 30 ,2025, compared with Rs 4,395 crore as on March 31, 2025 and Rs 6,018 crore as on March 31, 2024. According to management estimates, a reasonable level of collateral cover is in place for most of this portfolio, providing a degree of protection against potential losses.

However, any disruptions to the planned recoveries could necessitate higher provisioning and likely exert pressure on the group’s profitability. As such, the group's ability to realize the expected recoveries from the monitorable portfolio will remain a key area of focus and monitoring.

[1] Collateralized borrowing and lending obligation

[2] Excluding both insurance entities and corporate business, which are currently loss making