Detailed Rationale

Crisil Ratings has revised its outlook on the long-term bank facilities and non convertible debentures of Muthoot Microfin Limited (MML, a part of Muthoot Pappachan group [MPG]) to ‘Positive’ from ‘Stable’ while reaffirming the rating at 'Crisil A+’. Crisil Ratings has assigned its ‘Crisil A+/Positive’ rating to Rs 300 crore non convertible debentures of MML. Rating on commercial paper has been reaffirmed at ‘Crisil A1+’.

 

Crisil Ratings has also withdrawn its rating on non-convertible debentures (NCDs) worth Rs 150 crore, on receipt of an independent confirmation that these instruments have been fully redeemed, in line with its withdrawal policy. (Refer to ‘Annexure - Details of rating withdrawn' for details).

 

The revision in outlook follows a similar rating action on the Muthoot Fincorp Limited (MFL; rated 'Crisil AA-/Crisil A+/Positive/Crisil A1+'), the parent and flagship company of the Muthoot Pappachan group (MPG).

 

The ratings continue to factor in expectation of continued support from the parent, MFL. It also takes into consideration MML’s adequate capital position and its diversified resource profile. These strengths are partially offset by geographical concentration in the loan portfolio, moderate asset quality and susceptibility of the microfinance sector to regulatory and legislative changes.

 

MML’s portfolio quality has been affected in line with several issues faced by the sector over the last few quarters. The 90+ day past due (dpd) stood at 6.2% as on June 30, 2025 (5.7% as on March 31, 2025), as against 4.3% as on March 31, 2024. Gross non-performing assets (GNPAs) stood at 4.8% as on June 30, 2025 (4.8% as of March 31, 2025), as against 2.3% as on March 31, 2024. Assets under management (AUM) degrew slightly during the first quarter of fiscal 2026 to Rs 12,253 crore from Rs 12,357 crore as on March 31, 2025. However, overall asset quality (in terms of collections) has started showing some stability, since the fourth quarter of fiscal 2025. Collection efficiency under the non-overdue bucket has remained at over 99% during fiscal 2026. Further, the company has maintained adequate provisions for its stressed accounts, as reflected in the provision cover of 69% as on June 30, 2025. Crisil Ratings believes that despite some early signs of improvement in collections (in terms of collection efficiency under non-overdue bucket), the company’s ability to show substantial improvement in portfolio quality will be closely monitored.

 

Higher delinquencies led to elevation of credit cost (on account of higher provisions and write-offs), thereby affecting overall profitability of the company. Credit cost rose to around 7.5% during fiscal 2025, from 4.2% in fiscal 2024, while operating expense stood at 5.5% (5.2%), following the implementation of enhanced collection incentives to drive recoveries. The operating expenses inched up further during Q1 of fiscal 2026 to 6.1% (annualised), however, the credit cost have shown a decline to 3.6%. As a result, the company reported marginal profits during the quarter of Rs 6 crore with return on managed assets (RoMA) at 0.2% (annualised) as against the loss of Rs 222 crore, with return on managed assets (RoMA) at -1.6% during fiscal 2025 (Rs 449.6 crore and 3.7%, respectively, in fiscal 2024). Crisil Ratings expects earnings profile to improve in the second half of fiscal 2026 supported by further reduction in credit costs as portfolio asset quality improves.

 

The company remained well-capitalised, as reflected by networth of Rs 2,641 crore and gearing of 2.8 times as on June 30, 2025 (Rs 2,632 crore and 3.0 times, respectively, as on March 31, 2025). Capital position of the company also benefits from its strong parentage, which enables it to raise funds in a timely manner.

Analytical Approach

To arrive at the ratings, Crisil Ratings has taken a standalone view of MML and factored in expected support from MFL, the parent and flagship company of the Muthoot Pappachan group (MPG).

Key Rating Drivers - Strengths 

Expected financial, operational and management support from the parent

Given the majority ownership, shared name, common branding and corporate identity, Crisil Ratings believes MFL has a strong moral obligation to support MML, both on an ongoing basis and in the event of distress. The promoters of MPG are also on the board of MML. The microfinance business is strategically important to the group and is its second largest business, in terms of AUM, after gold loans. In addition, MML provides diversity to the overall product profile of the group. The company is also likely to benefit from new microfinance regulations, which allow for 40% of non qualified assets in the overall book. The company is expected to diversify across the secured segments leveraging the expertise of the group companies. Consequently, MML’s share in MPG’s profitability is expected to increase over the medium term.

 

Adequate capitalisation

MML is adequately capitalised, with networth of Rs 2,641 crore (Rs 2, 632 crore as on March 31, 2025) and gearing of 2.8 times as on June 30, 2025. Capitalisation was supported by capital infusion through an initial public offer (IPO) in December 2023, with fresh equity of Rs 760 crore and Rs 200 crore via offer for sale. Resultantly, the capital adequacy ratio (CAR) stood at 27.9% as on June 30, 2025. Despite the equity raise, which has brought down MFL’s stake to 50.2% from 60.3% earlier, Crisil Ratings understands MFL will retain the majority ownership in MML. Extent of ownership retained by MFL will be a key rating sensitivity factor.

 

Diversified resource profile

Strong relationships of the parent company and track record in navigating industry cycles have helped MML to develop a large base of lenders; the company has over 50 lenders as on June 30, 2025, diversified across term loans (46%), ECB (14%), non-convertible debentures (6%) and securitization (36%). Currently, the average cost of borrowing stood at around 10.9%. Along with the normal funding limit, the company also has unutilised securitisation lines amounting to Rs 1,002 crore as on June 30, 2025. Crisil Ratings overall believes, given the company’s reasonable growth plans, its ability to continue to raise funds at competitive rates will remain a monitorable.

Key Rating Drivers - Weaknesses 

Average asset quality

The 90+ dpd rose to 6.2% as on June 30, 2025 (5.6% as on March 31, 2025), from 4.2% as on March 31, 2024. Asset quality has been impacted by increase in indebtedness across customers, along with external challenges such as heat waves, elections and ground-level attrition. However, overall asset quality (in terms of collections) started showing some stability, particularly since the fourth quarter of fiscal 2025. Collection efficiency under the non-overdue bucket was around 99% consistently during fiscal 2026. 

 

Higher delinquencies led to elevation of credit cost (on account of higher provisions and write-offs), thereby affecting overall profitability of the company. Credit cost rose to around 7.5% during fiscal 2025, from 4.2% in fiscal 2024, while operating expense stood at 5.5% (5.2%), following the implementation of enhanced collection incentives to drive recoveries. The operating expenses inched up further during Q1 of fiscal 2026 to 6.1% (annualised), however, the credit cost have shown a decline to 3.6%. As a result, the company reported marginal profits during the quarter of Rs 6 crore with return on managed assets (RoMA) at 0.2% (annualised) as against the loss of Rs 222 crore, with return on managed assets (RoMA) at -1.6% during fiscal 2025 (Rs 449.6 crore and 3.7%, respectively, in fiscal 2024). Crisil Ratings expects earnings profile to improve in the second half of fiscal 2026 supported by further reduction in credit costs as portfolio asset quality improves.

 

Geographical concentration remains high

Operations are expected to remain concentrated in South India over the medium term. Tamil Nadu, Kerala and Karnataka account for 25%, 14% and 8% of MML’s portfolio, respectively, and together formed 47% of its AUM as on June 30, 2025. The company has been expanding to around 15 other states over the past two years. As a result, per-state concentration has declined consistently, with the top state accounting for 25% of the total portfolio as on June 30, 2025, down from 53% as on March 31, 2016. However, the ability to replicate systems, processes and controls in new geographies remains a key monitorable. Following natural calamities such as cyclones and floods reported in recent fiscals, the company plans to reduce geographical concentration of its portfolio to around 20% per state, over the medium term, so as to reduce the impact of such events on the overall portfolio.

 

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

A significant portion of the MML’s portfolio comprises loans to individuals under the joint-liability group (JLG) mechanism. These customers have weak credit risk profiles and lack of access to formal credit. They include farmers, tailors, cattle owners/traders, small vegetable vendors, teashop owners and dairy farmers. The incomes of these households could be volatile and dependent on the performance of the local economy.

 

The microfinance sector has witnessed various events over the years, including regulatory and legislative challenges, that have disrupted operations. Some of these events include the Andhra crisis, demonetisation in 2016, Covid-19 pandemic and sociopolitical issues in certain states. These events adversely affected the sector, elevated delinquencies and hurt the profitability and capitalisation metrics of NBFC-MFIs. These challenges underscore the vulnerability of the microfinance business model to external risks. Covid-19 introduced new challenges, aggravating existing vulnerabilities in the microfinance sector by heightening credit risks and the likelihood of loan default by borrowers. While the sector has navigated these events, it remains susceptible to issues, including local elections, natural calamities and borrower protests, which may increase delinquencies for a while. Nevertheless, the company was able to manage its portfolio well without any significant impact on recoveries. However, MFIs remain vulnerable to socially sensitive factors and the macroeconomic scenario. Furthermore, the sector is regulated by multiple bodies which, from time to time, have been providing several directives to maintain credit discipline and avoid over indebtedness for borrowers

Liquidity: Adequate

MML had cash and equivalents (including liquid investments and excluding term loans and securitisation lines) of Rs 537 crore as on June 30, 2025, against debt obligation of Rs 1,218 crore due for servicing over July and August 2025. This represents liquidity cover (assuming 75% collection efficiency) of 1.2 times for two months. In addition, the company had securitisation lines of Rs 1,002 crore as on June 30, 2025. Liquidity is further backed by steady collections reported for the last 2-3 months, and fresh sanctions in the pipeline, and expectation of need-based and timely funding support from the parent, MFL.

Outlook: Positive

Crisil Ratings believes MML will continue to benefit from the strong support of its parent, MFL.

Rating Sensitivity Factors

Upward factors

• Any upward revision in the rating view on the parent, MFL
• Improvement in earnings with RoMA maintained at over 3.0% on consistent basis
• Improvement in asset quality, while growing portfolio, with 90+ dpd remaining less than 1% on steady-state basis
• Geographical diversification in operations alongside scale with reduction in state and district level concentration

 

Downward factors

• Any downward revision in the rating view on MFL or change in the support philosophy from it
• Adjusted gearing increasing to and remaining above 7 times for a prolonged period
• Weakening of asset quality or earnings profile, leading to stressed profitability and capital position.

About the Company

MML, a part of MPG, provides microfinance loans to women. MPG started its microfinance operations in 2010, as a separate division of MFL, the flagship company of the group. In December 2011, the group acquired a Mumbai-based non-banking financial company (NBFC), Pancharatna Securities Ltd, and renamed it as MML.

 

In March 2015, MML received an NBFC-MFI licence from the Reserve Bank of India. As on March 31, 2025, MFL held 50.2% equity in MML, followed by its promoters, who held 5.3%. Along with the promoters, MML's board includes one member nominated by Creation Investments and Greater Pacific Capital and four independent directors.

 

MML had AUM of Rs 12,253 crore and networth of Rs 2,641 crore as on June 30, 2025. Operations of the microfinance division are spread across Kerala, Tamil Nadu, Puducherry, Karnataka, Maharashtra, Gujarat, Haryana, Rajasthan, Uttarakhand, Madhya Pradesh, Uttar Pradesh, Odisha, West Bengal, Punjab, Chhattisgarh, Jharkhand, Bihar, Himachal Pradesh and Telangana.

Key Financial Indicators

Particulars	Unit	June 2025	March 2025	March 2024	March 2023
Total assets	Rs crore	10426	10857	11590	8529
Total income	Rs crore	552	2450	2286	1446
Profit after tax	Rs crore	6	-222	449.6	163.8
90+ day past due	%	6.2	5.6	4.2	5.1
Gearing	Times	2.8	3.0	3.0	4.0
Return on managed assets	%	0.2	(1.6)	3.6	1.8

 

Any other information: Not Applicable