Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Strong capitalisation with healthy cover for asset-side risks

Capitalisation is supported by sizeable networth of Rs 21,822 crore as on March 31, 2025, supported by equity raise of Rs 4,939 crore in fiscal 2025 (Rs 3,639 crore in the form of rights issue and Rs 1,300 crore through qualified institutional placement) and healthy internal accrual. While internal accretion to reserve was impacted in fiscal 2025 on the account of one-time high provisions in Sammaan Finserve translating into consolidated loss of Rs 1,807 crore for the fiscal, capital position remains strong. Furthermore, networth coverage for net non-performing assets (NNPAs) was comfortable at around 44.2 times as on March 31, 2025. Consolidated Tier 1 capital adequacy ratio (CAR) and overall CAR stood at 34.5% and 34.8%, respectively, as on March 31, 2025. Consolidated on-book gearing was comfortable at 2.0 times as on March 31, 2025 (2.5 times as on

March 31, 2024). Given the strong liquidity that Sammaan Capital maintains on a steady-state basis, net gearing was 1.6 times as on March 31, 2025 (2.1 times a year ago). Strong capitalisation should continue to support the overall financial risk profile.

Comfortable asset quality in retail segment

Sammaan Capital demonstrated a notable improvement in asset quality, with overall gross non-performing assets (GNPAs) reducing to 1.32% as on March 31, 2025, from 2.68% a year earlier. This improvement was primarily driven by a decline in the GNPAs in the mortgage book to 0.90% (from 1.71% as on March 31, 2024), supported by write-offs in legacy book and the company’s enhanced focus on retail lending with prudent underwriting practices.

With the company's strategic focus on developing a more diversified and granular retail portfolio, on an asset light business model, the ability to maintain the asset quality metrics will remain monitorable.

The commercial credit segment, while showing improvement, continues to carry elevated risk with GNPAs at 5.88% as on March 31, 2025, down from 10.28% a year earlier. The reduction was driven by ongoing portfolio run-down, refinancing efforts and especially on account of fair valuation activity done in Q2-FY2025, when legacy book of Sammaan Finserve was transferred to Sammaan Capital.

Nevertheless, the risk-mitigating measures of Sammaan Capital are prudent, in the form of conservative loan-to-value ratios (averaging around 60%) in the loan against property (LAP) segment, and emphasis on collateral with sufficient cover in the commercial real estate segment. However, any sharp increase in NPAs, mainly in the commercial credit portfolio, and its impact on profitability will remain key rating sensitivity factors.

Sizeable presence in the retail mortgage finance segment

The company has been realigning its business model towards an asset light portfolio, with focus on retail segments with co-origination and sell-down as the primary strategies and selective wholesale lending. In line with this realignment, post surrendering its housing finance company (HFC) license, the company received its non-banking financial company – investment and credit company (NBFC-ICC) license in June 2024. With enhanced retail focus, its ‘growth AUM (assets under management)’ (defined by the company as loans disbursed after fiscal 2022, which are smaller ticket sized and retail focused loans) increased from Rs 26,537 crore (41% of AUM) as on March 31, 2024, to Rs 37,452 crore (60% of AUM) as on March 31, 2025, logging a growth of 41% on-year. The remaining 40% of the book comprise legacy AUM, which has run-down significantly to Rs 24,894 crore as on March 31, 2025, from Rs 120,525 crore as on March 31, 2019.

With total AUM of Sammaan Capital at Rs 62,346 crore as on March 31, 2025, it remains a sizeable player in the segment. Share of housing loans within the overall AUM increased to 73% as on March 31, 2025, from 50% as on March 31, 2015. The LAP portfolio accounted for 18% of the overall AUM as on March 31, 2025, with the remaining comprising commercial credit. The proportion of housing loans and LAP is expected to increase further over the medium term.

While the overall AUM declined by 5% on-year as on March 31, 2025, primarily led by lower disbursements as well as higher prepayments and sell-down in the commercial credit book, it grew by 1% during the last quarter. The overall disbursements during fiscal 2025 were Rs 15,807 crore (Rs 14,807 crore during fiscal 2024). The business is currently transitioning towards building a more granular portfolio on an asset-light model and will start picking up pace over the medium term. The share of own book in the overall book was 79% as on March 31, 2025. Over the medium term, share of own book in the total AUM will continue to decline as the company remains focused on co-lending. Nonetheless, its overall presence in the retail mortgage finance market should remain sizeable.

Weaknesses:

Successful transition to new business model to be established

In line with recalibration of the company’s business model towards a less risky and asset-light framework, Sammaan Capital’s disbursements will primarily be in the housing loans and LAP segments (with a potential 60:40 split), with a low proportion of incremental disbursals in the developer finance portfolio. Furthermore, on a steady-state basis, of the overall disbursals, a significant proportion will be either co-originated or sold down to banks. Under this new model Sammaan Capital has entered into a co-origination agreement with financial institutions. Disbursements amounting to Rs 9,766 crore were done in fiscal 2025, up 2% from last fiscal (Rs 9,560 crore in fiscal 2024), under these agreements. However, the ability of the management to increase the disbursement pace, establish tie-ups with multiple banks and successfully scale-up this model, while maintaining healthy profitability and asset quality, is yet to be witnessed. However, the company has demonstrated good execution capabilities in scaling up businesses in the past.

On the focus asset classes, Sammaan Capital is going to continue to engage in prime mortgage segments with focus on asset light business model, while Samman Finserve will now operate within affordable housing space. The ability of the management to scale up its portfolio in the affordable mortgage business in line with the targeted AUM of Rs 15,000 crore by fiscal 2027 will be monitored.

Furthermore, as a part of group’s realignment, the management is working towards turning Samman Finserve into an independent entity by creating a distinct business model and by developing a separate product suite, technology, and distribution network. As a part of this realignment, in the second quarter of fiscal 2025, Sammaan Capital bought entire legacy portfolio (book value Rs 7,200 crore from Sammaan Finserve) causing Sammaan Finserve to make one-time provision of Rs 4,050 crore, which included Rs 1,700 crore in provisions for the delinquent loans and a ~Rs 2,350 crore discount on the remaining Rs 5,500 crore portfolio. This one time high provisions led to a reported loss of Rs 2,717 crore for Sammaan Finserve in FY2025, which translated into a loss of Rs 1,807 crore for Sammaan Capital at consolidated level. The management expects recoveries to continue at a normal pace from these accounts and any recovery in excess of provisions will be used for any provisioning requirement later.

The earnings profile in fiscal 2025 was impacted due to one-time high provisions. However, going forward, with shift towards asset light model, earnings are expected to improve supported by income from co-origination, off-balance sheet portfolio, and from spread on sold-off loans commensurating with more granular and lower risk portfolio, and the same will remain a key monitorable.

Susceptibility to asset quality risks arising from the commercial real estate portfolio

Asset-quality risks arising from a sizeable, large-ticket commercial portfolio of Rs 5,217 crore as on March 31, 2025, persist, and could impact the portfolio performance. This portfolio exhibits high concentration (average ticket size of Rs 150 crore), with the top 10 exposures forming 68% of the corporate AUM and having a median rating of ‘B/BB’. Thus, even a few large accounts experiencing stress could impact on the overall asset quality.

However, the share of commercial credit in the overall AUM decreased over the last few years to 9% as on March 31, 2025, from 17% as on March 31, 2019. The management has launched an alternative investment fund (AIF) platform for this segment wherein Rs 200 crore has been disbursed to a leading developer. Furthermore, the process of filing for regulatory approvals is underway for launching two more AIFs. The company may continue to do selective lending to existing borrowers in this space over the medium term.

However, any weakening in asset quality, specifically in the commercial real estate book and its impact on profitability, remains monitorable.