Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Strong financial and management support from the parent

The parent will continue to provide support on an ongoing basis and in the event of distress, given its majority ownership (99.56%) and IIFL Samasta’s strategic importance to the group, and presence in the board of directors. The microfinance business is strategically important and helps diversify the financial product suite of the parent and expand its presence in the financial services space. IIFL Samasta’s business is well established, whereby 14.17% of IIFL consolidated portfolio comprises Samasta’s book. Regular financial support—through equity infusion—and strategic inputs from IIFL Finance have enabled the company to ramp up operations. Thus far, IIFL Finance has infused capital of Rs 1140 crore into IIFL Samasta and is expected to provide further capital as needed. It also has representatives on the board and senior management of IIFL Finance is actively involved in managing the treasury. Hence, Crisil Ratings believes IIFL Finance has a strong moral obligation to continue supporting IIFL Samasta.

Adequate capitalization

IIFL Samasta is adequately capitalised, with a networth of Rs 2,034 crore on March 31, 2025 (Rs 2,010 crore as on March 31, 2024). The on-book gearing improved to 3.0 times as on March 31, 2025, as against 4.4 times as on March 31, 2024 (5.7 times as on March 31, 2023). On the same date, the capital adequacy ratio (CAR) remained comfortable at 32.4% as on March 31, 2025 (against 24.0 % as on March 31, 2024). Because of the parents’ ability and willingness to infuse capital when required, IIFL Samasta’s capitalisation is expected to remain adequate over the medium term in the normal course of business.

Average resource profile

The resource profile of IIFL Samasta has improved since after its acquisition by IIFL Finance and remains average. On March 31, 2025, the overall borrowing base comprises of bank funding (47.29%), Non-Convertible Debenture funding (13.10%), refinance (5.46%), commercial paper [CP] (0.89%), sub debt (6.19%), Pass through certificate [PTC] (9.84%) and direct assignment (17.22%). For fiscal 2025, the average cost of borrowing was around 11.1%(10.5% including PTC) as against 10.9% for the previous fiscal. Moreover, the company had a lender base of over 52 lenders as on March 31, 2025.

Weaknesses:

Moderate asset quality

The share of 90+ dpd in overall AUM rose to 6.6% as on March 31, 2025 from 2.2% on March 31, 2024. Over the past few quarters, asset quality has remained impacted by issues like increase in average customer indebtedness, heightened attrition and other challenges that surfaced post issuance of the ‘Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Ordinance, 2025’. Owing to these issues, the average overall collection efficiency stood at 92.0% during this year as compared to 97.5% for fiscal 2024. This metric bottomed at 87.5% in February 2025 and thereafter – started to restore as it corrected to 90.6% for March 2025. Further, the company has written-off Rs 723.97 crores including Net Loss on asset reconstruction company (ARC) transaction worth Rs 175.16 crores during fiscal 2025 . The provision coverage on NPAs stood at 70.5% as on March 31, 2025.

Resultantly, credit costs (as a % of total managed assets) increased to 5.3% during the year from 3.1% in fiscal 2024 (including write offs). This, in addition to a simultaneous uptick in operating expenses to 6.6% from 5.9% over the fiscal, constrained the overall profitability at a RoMA level of 0.14% (Reported profit of Rs 20 crore) vis-à-vis 3.7% (Reported profit of Rs 503 crore) for fiscal 2024.

Geographical concentration remains high

Though diversifying gradually with existing presence across 22 states, the loan portfolio of IIFL Samasta is still highly concentrated with 47.9% of its overall portfolio as on March 31, 2025, housed in three states: Bihar (22.3%), Tamil Nadu (12.3%) and Karnataka (13.3%). The top five districts accounted for 9.6% of the loan book. In terms of disbursements, growth in Bihar has been particularly rapid, reflected in the proportion of AUM in the state increasing from 1.1% as on March 31, 2018, to 22.5% as on 31 March 2025. In the past, while the company started to expand across newer states such as Punjab (0.3%), Haryana (0.6%), Madhya Pradesh (4%) etc. – growth in these regions had to be momentarily recalibrated due to asset quality challenges being faced in the aftermath of the Karza Mukt Bharat Abhiyan. While the company is endeavoring to regionally diversify its portfolio, its ability to manage portfolio quality in some of the prominent regions remains a key monitorable.

Susceptibility to risks arising from exposure to borrowers with inherently weak credit risk profiles and socio-political issues in the sector

The microfinance sector has experienced several significant disruptions over the years, largely due to regulatory and legislative challenges. Key events such as the Andhra Pradesh crisis, the 2016 demonetization, the COVID-19 pandemic, and various state-specific socio-political issues have negatively impacted operations. These disruptions have led to increased delinquencies, affecting both the profitability and capital adequacy of NBFC-MFIs. Such developments highlight the sector’s vulnerability to external shocks.

The COVID-19 pandemic, in particular, exacerbated pre-existing weaknesses in the sector by intensifying credit risks and increasing the likelihood of borrower defaults. While the microfinance industry has shown resilience in navigating these crises, it remains highly sensitive to external factors such as local elections, natural disasters, and borrower protests, which can cause temporary spikes in delinquency rates.

For instance, IIFL Samasta suffered significant credit losses following both demonetization and the COVID-19 pandemic, underscoring the fragility of the microfinance business model in the face of such disruptions. Going forward, MFIs will continue to be exposed to socially sensitive risks, including high interest rates, evolving regulatory frameworks, and potential legislative changes.