Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA/Stable/Crisil A1+’ ratings on the long term bank facility and commercial paper of JM Financial Limited (JMFL).

 

The ratings continue to reflect JM Financial group's established market position across capital market businesses and diversified business model, continued healthy capitalisation metrics, and adequate and diversified earnings profile. The ratings also factor in vulnerability of asset quality to slippages in the wholesale lending business and susceptibility to uncertainties inherent in capital-market-related businesses, including regulatory changes.

 

JM Financial group is present across various capital markets businesses as well as lending activities, both wholesale and retail. While the thrust of the group has been towards growing the lending book since last few years, the group announced a business pivot with focus on 4 identified business verticals over the last few quarters. The changed strategy includes increased focus on scaling the fee and commission based businesses which include investment banking, institutional equities, retail/ high net worth investors facing businesses of asset management, mutual fund, wealth, broking, and investment advisory businesses. On the retail lending side, the focus on growing affordable home loan portfolio will continue. Further, on wholesale credit business (including real estate lending, bespoke/corporate lending, distressed credit and financial institutions funding), the focus will be towards asset-light debt syndication model and hence developing a strong fee-based revenue stream. The group is also looking to shift some of the wholesale credit to alternative investment space. Though the group has demonstrated strong execution capabilities in the past, Crisil ratings will continue to monitor the group’s transition towards the laid out strategy.

Analytical Approach

For arriving at its ratings, Crisil Ratings has combined the business and financial risk profiles of all companies, including ARC businesses, within the JM Financial group. The combined approach is because of significant operational and financial integration among group companies, common senior management, and shared brand. All the companies are collectively referred to as the JM Financial group.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Established market position across capital market businesses and diversified business model

The group has developed a strong franchise in key operating segments such as investment bank, institutional and retail broking, wealth management and private credit syndication. This is aided by the track record and reputation of its experienced management and healthy client relationship. The group has a strong network of borrowers with whom they have long relationship. Over the years the company has also strengthened its risk department. Further, the group has gradually scaled up mortgage lending with a focus on the affordable segment.

 

The flagship business for the group is investment banking, with over five decades of experience. This has resulted in JM Financial group establishing a strong brand and a network of loyal clientele, making it one of the leaders in this domain. The group has market leadership in equity capital markets and mergers & acquisition and has strong presence across other verticals like private equity and advisory business. Over years, the group has also expanded in other capital market businesses and now has established presence broking both institutional and retail- and wealth management (Assets Under Management (AUM) of Rs 1.1 lakh crore as on December 31, 2024). While the group is developing newer offerings and products within these segments and trying to cater to a wider set of customers, it is also focusing on building stronger presence in asset management segment, with focus towards alternate asset management and mutual fund business. 

 

On the lending front, the group had a loan book of Rs 7,947 crores as on December 31, 2024, comprising wholesale mortgage (39%), retail mortgage (36%), bespoke (18%), Financial Institutions Financing (6%) and capital markets lending (1%). With the business pivot towards debt syndication for wholesale financing, the lending book of the group has degrown over last few quarters. Going forward, the affordable home loans portfolio (started in FY2017) will continue to grow on balance sheet. However, the strategy on wholesale credit, including distressed assets business done via the ARC, will be to originate and sell down with only 20-30% exposure of the group. For this, the group plans to continue to leverage its strong underwriting experience, existing relationship with developers and corporates, and reach towards partners and investors.

 

Crisil Ratings will continue to monitor the ability of the group to further strengthen its fee based businesses and successfully implement the shift in the lending business.

 

Healthy capitalisation

Capitalisation metrics for JM Financial group remains healthy with networth (including minority interest) of around Rs 11,420 crores as on December 31, 2024 (Rs 11,003 crores as on March 31, 2024) with overall CAR at 36.7% (37.0% as on March 31, 2024). The capitalisation metrics have also been supported by steady accruals and capital raises, as and when required. Gearing remained comfortable at 1.1 times as on December 31, 2024 (1.5 times as on March 31, 2024). The management intends to keep the net gearing at around 1 time (on a consolidated basis) going ahead, with the change in the strategy towards asset-light model for wholesale lending and more thrust towards debt syndication. The group’s healthy capitalisation also provides adequate cushion against the asset-side risks as reflected in healthy provision coverage ratio (PCR) of 84% as on December 31, 2024.

 

Adequate earnings profile

The earnings profile for JM Financial group remains adequate with an average 5-year return on assets (RoA) of around 2.6% and return on equity (RoE) of 6.4%. The group reported a total revenue of Rs 3,426 crores and a profit after tax (PAT; before NCI and after share of profit of associate) of Rs 539 crores for the nine months ending December 31, 2024 (9MFY25). The annualized RoA and RoE was 2.6% and 6.4% for this period. The profitability in fiscal 2024 was reduced, with PAT of Rs 31crore (Rs 709 crore for fiscal 2023), on account of distressed credit business incurring an exceptional expense of Rs 847 crore linked to downward fair valuation of the security receipts and impairment loss on loans for one large exposure.

 

The PAT after NCI and after the share if profit of associate stood at Rs. 612 crore for nine months of fiscal 2025 as against Rs. 410 crore for fiscal 2024.

 

Further, the returns have dipped over last few years because of increased credit costs in the wholesale lending portfolio with increase in delinquencies, especially in the developer financing portfolio. The credit cost for the group for fiscal 2024 and 9MFY25 was at 2.0%, as against average of 1.0% for the three years before this. Having said this, the gross non-performing assets (NPAs) have been provided at 84% as on December 31, 2024 and hence going forward, the recoveries from these accounts are expected to lead to write-backs and positively impact the profits. Further, the operating expense for the group has been higher for the group over last couple of years on account of investment in teams and technology for newer products. Overtime, the same should start giving benefit of economies of scale.

 

Nevertheless, the group benefits from greater diversification of the business profile over the past few years. The group has strengthened its investment bank segment primarily through fixed income capabilities and improving synergies and product capabilities and has also established strong foothold in other businesses of the group. The investment bank, mortgage lending, alternative and distressed credit and Platform AWS business constituted around 40%, 30%, 5% and 25% respectively of total revenue during 9MFY25. PAT contribution from these segments constituted 76%, 8%, -5% and 11% respectively, during the period.

 

Overall, the ability of the group to start sweating out the investments done recently, increase the fee-based income as a proportion of total income and limit any further deterioration in asset quality will have a bearing on the earnings for the group over medium term and will remain monitorable.

 

Weakness:

Asset quality in the wholesale lending business remains inherently vulnerable; albeit risk management processes are comfortable

As on December 31, 2024, the gross NPA and net NPA for the group increased to 10.5% and 1.7%, from 4.7% and 2.2% respectively as on March 31, 2024. The increase was on account of both, the reduction of the loan book and few large ticket spillages in the wholesale lending portfolio during the period. The overall AUM for the group declined to Rs. 7947 crore as on December 31, 2024 from Rs. 12917 crore as on March 31, 2024.

 

Wholesale mortgage gross NPA and net NPA stood at 14.6% and 0.9%, respectively. Group’s wholesale segment is vulnerable to slippages in asset quality, which accounts of ~63% of lending book as on December 31, 2024. However, the group has build up a high  PCR of 84% as on December 31, 2024, which should help limit further impact on the profitability of the group .

 

The retail mortgage gross NPA and net NPA remained comfortable and stood at 1.0% and 0.7%, respectively.

 

The group also maintains healthy capitalisation, which inherently provides cushion against asset-side risk. JM Financial group has put in place adequate credit appraisal, strong risk management and processes, and strengthened them over last few years. In addition, the shift in the strategy towards asset light model for the wholesale credit business and increased focus on retail mortgage should help the group reduce concentration risk and keep the slippages range bound. Crisil Ratings will continue to monitor the trend in asset quality going ahead.

 

Susceptibility to uncertainties inherent in capital-market-related businesses, including regulatory changes

With capital market linked businesses forming the major product suit for the group, it remains susceptible to vagaries of the market. Since corporate and investor sentiments drive investment banking related activities and portfolio flows in the wealth management business, business and earnings are susceptible to cyclicality and volatility in capital markets as well as various other political, social and macroeconomic factors.

 

The group is also exposed to regulatory risk. Unlike lending operations, investment banking and  wealth and asset management are largely fee-based businesses, and thus, any credit event has a relatively lower impact on them. However, these businesses operate in a highly regulated environment, and any unanticipated change can adversely impact the business model. For instance, in the last few years, regulations that prohibited upfront commissions, led to a sharp erosion in commission income. Similarly, in the broking business,  with the objective of enhancing transparency and limiting the misuse of funds, the Securities and Exchange Board of India (SEBI) introduced a few regulations in the past 3-4 years. Some of these include upfront margin collection for intraday positions and limiting the use of power of attorney, with the most recent being a revised Equity Index Derivatives Framework. 

 

Therefore, any change in market sentiment or regulatory change could adversely impact the businesses of the group and will remain monitorable.

Liquidity: Strong

Asset-liability mismatch (ALM) statements of the key lending entities of the group did not show negative cumulative mismatches in the up to 1-year buckets, as on December 31, 2024. At a group level, as on December 31, 2024, the company had cash and cash equivalents and liquid investments aggregating Rs 5,840 crore against debt obligation (including interest) of Rs 2,889 crore coming up for maturity till June 30, 2025.

 

ESG

Crisil Ratings believes that JMFL’s Environment, Social, and Governance (ESG) profile supports its credit risk profile.

 

The ESG profile of financial institutions typically factors in governance as a key differentiator between them. The sector has reasonable social impact because of its substantial employee and customer base, and it can play a key role in promoting financial inclusion. While the sector does not have a direct adverse environmental impact, the lending decisions may have a bearing on environment and other sustainability related factors.

 

JMFL group has an evolving focus on strengthening various aspects of its ESG profile.

 

JMFL group’s key ESG highlights:

• The Group promotes ecological sustainability and has taken measures to minimise its environmental impact. Digitalisation is one of the platforms, which has helped the Group in reducing the paper and stationery.
• The company believes in investing efforts towards employees’ wellbeing. Company has also taken initiatives for building and enhancing the talent pool. The diversity currently stands at ~36%.
• The governance structure is characterised by 66% of the board members being independent, effectiveness in board functioning and enhancing shareholder wealth, presence of investor grievance redressal mechanism and extensive disclosures.

 

There is growing importance of ESG among investors and lenders. JMFL group’s commitment to ESG will play a key role in enhancing stakeholder confidence, given presence of foreign investors.

Outlook: Stable

Crisil Ratings believes the JM Financial group will maintain its healthy financial risk profile over the medium term, supported by strong capitalization and conservative gearing.

Rating Sensitivity Factors

Upward factors

• Successful shift in business model towards fee based businesses, with focus on home loans and debt syndication on lending side, coupled with significant improvement in market position across product offerings
• Diversification in earnings profile leading to greater stability in profitability and improvement in overall profitability with sustained with RoA of >3.5%

 

Downward factors

• Deterioration in asset quality of the lending portfolio, thereby impacting profitability
• Challenges in raising funds from diversified sources on consistent basis and at optimal rates
• Weakening of capitalisation metrics with gearing increasing beyond 3 times on a sustained basis

About the Company

JMFL is the holding company of the operating entities in the JM Financial Group, which is an integrated and diversified financial services group. JMFL is engaged in investment banking, portfolio management, wealth management and the management of private equity fund(s).

About the Group

JM Financial is an integrated and diversified financial services group. The Group’s primary businesses include (i) Integrated Investment Bank (IB) caters to Institutional, Corporate, Government and Ultra High Networth clients and includes investment banking, institutional equities and research, private equity funds, fixed income, private wealth management, PMS, syndication and finance; (ii) Mortgage Lending includes both wholesale mortgage lending (primarily catering to real estate developers) and retail mortgage lending (affordable home loans and secured MSME); (iii) Alternative and Distressed Credit includes the asset reconstruction business and alternative credit funds; and (iv) Asset management, Wealth management and Securities business (Platform AWS) provides an integrated investment platform to individual clients and includes elite and retail wealth management business, broking and mutual fund business.

 

As of December 31, 2024, the wealth management AUM stood at Rs 1,10,532 crore, mutual fund QAAUM at Rs 13,574 crore, the consolidated loan book at Rs 7,947 crore and distressed credit business AUM at Rs 12,842 crore.

 

The Group is headquartered in Mumbai and has a presence across 907 locations spread across 231 cities in India. The equity shares of JM Financial Limited are listed in India on the BSE and NSE.

Key Financial Indicators: JM Financial Limited (Consolidated)

Particulars	Unit	Dec-24	Mar-24	Mar-23	Mar-22
Total assets (net of goodwill on consolidation)	Rs. Cr.	26,206	29,711	29,318	25,762
Networth (including NCI and net of goodwill on consolidation)	Rs. Cr.	11,420	11,003	10,972	10,453
Loan book	Rs. Cr.	7,947	12,917	15,653	13,017
Total income	Rs. Cr.	3,426	4,832	3,343	3,763
Profit after tax (before NCI and after share of profit of associate)	Rs. Cr.	539	31	709	992
Reported Profit after tax (post NCI)	Rs. Cr.	612	410	597	773
Return on assets*	%	2.6	0.1	2.7	4.2
Return on networth*	%	6.4	0.3	6.5	9.8
Return on net worth (adjusted for the share of NCI)*	%	9.4	5.0	7.6	10.6
Gross NPA	%	10.5	4.7	3.4	4.3
Net NPA	%	1.7	2.2	2.1	2.7
CRAR	%	36.7	37.0	38.5	39.4
Gearing	Times	1.1	1.5	1.5	1.2

NCI is non-controlling interest

*annualized

Note: the ratios have been calculated as per Crisil Ratings standard methodology

Any other information

• Reserve Bank of India (RBI), through press release dated March 5, 2024, had directed JM Financial Products Ltd (JMFPL) to cease and desist, with immediate effect, from doing any form of financing against shares and debentures, including sanction and disbursal of loans against initial public offering (IPO) of shares as well as against subscription to debentures. JMFPL, however, could continue to service its existing loan accounts. On October 18, 2024, the restrictions were lifted by the RBI vide a letter to the company, thereby permitting JMFPL to provide financing against shares and debenture with immediate effect. The company has resumed its loan against securities (LAS) business post the receipt of the letter. However, the Board of Directors of JMFPL had decided to voluntarily discontinue the IPO financing business.

 

Furthermore, Securities and Exchange Board of India (SEBI) through its interim ex-parte order barred JMFL from taking any new mandate for acting as a lead manager for any public issue of debt securities. However, for existing mandates, JMFL was allowed to continue to act as the lead manager for public issue of debt securities for a period of 60 days from the date of the interim ex-parte order. On June 20, 2024 SEBI passed a confirmatory order barring JMFL from acting act as a lead manager in any public issue of debt securities till March 31, 2025. This was in line with the voluntary submission that JMFL had made as part of the hearings to the SEBI. The order also clarified that this is limited to the functioning of JMFL as a lead manager to public issue of debt securities and does not relate to other activities of JMFL, including acting as a lead manager to public issue of equity instruments.

 

Crisil Ratings believes revenue and net profit contribution from the businesses stopped by the group – IPO financing and DCM activities- is not substantial for the group.

 

• Crisil Ratings has also taken note of the consolidation done in the JM group. On March 18, 2025, transfer of 57,09,32,034 equity shares of JMFARC (representing 71.79% of total paid up capital) by JM Financial Limited (JMFL) to JM Financial Credit Solutions Limited (JMFCSL) was concluded for a cash consideration of Rs. 856 crore. Post the transfer, JMFCSL now holds 81.77% in JMFARC, with the group continuing to hold 81.77%.
• Further, JMFCSL has now become the sponsor for JMFARC. In addition, JMFL has also acquired equity shares in JMFCSL from INH Mauritius 1 and Aparna Aiyar Family Trust increasing the shareholding of the group in JMFCSL from 46.68% to 97.02% as on March 25, 2025. JMFL will continue to have 81.77% shareholding in JMFARC through JMFCSL going ahead.
• On March 17, 2025, the Board of Directors of JMFL also approved entering into business transfer agreement with JMFSL for the transfer of the Private Wealth business on a slump sale basis. The business transfer is effective from April 1, 2025. With this the private wealth business will now be integrated with JMFSL’s existing businesses.