Detailed Rationale

Crisil Ratings has downgraded its rating on the long-term bank facilities of Spandana Sphoorty Financial Limited (SSFL) to ‘Crisil BBB+/Stable’ from ‘Crisil A-/Stable’.

 

Crisil Ratings has also withdrawn its rating on Rs. 1800 Cr. proposed long term bank loan facility at the company’s request. This is in line with Crisil Rating’s policy on withdrawal of bank loan ratings.

 

The rating action is driven by higher than anticipated moderation in profitability on account of continued asset quality pressure resulting in elevated credit costs. Apart from asset quality challenges, the business risk profile has also been constrained by slower than expected revival in business.  

 

As on March 31, 2025, the gross and net non-performing assets (GNPA and NNPA, respectively) increased to 5.6% (24.9% including write-offs) and 1.2%, from 1.5% and 0.3% as on March 31, 2024. This surge in asset quality metrics was a factor of pervading ground level challenges like over-indebtedness and high attrition of field staff since Q1 2025 and challenges in states like Karnataka. This led the company to incur incremental credit costs of Rs 603 crore for Q4 2025, resulting in an annual credit cost (as a % of average managed assets) of 17% for fiscal 2025 – significantly higher than 2.1% for fiscal 2024. Therefore, reported loss for Q4 2025 was Rs 434 crore as against a loss of Rs 440 crore for the previous quarter of fiscal 2025 and a profit of Rs 129 crore for the corresponding quarter of the previous fiscal.

 

For full fiscal 2025, the company reported a loss of Rs 1,035 crore which translates to a return on managed assets (RoMA) of -8.9% marking a deterioration over fiscal 2024 for which the company had reported a profit of Rs 501crore and a RoMA of 4.1%.

 

As these challenges are likely to continue over majority of Q1 2026 as well, the company’s asset quality and profitability are expected to remain vulnerable over the near to medium term and start improving materially only by the latter half of fiscal 2026. The pace and magnitude at which asset quality and overall profitability restore to normalcy, will remain a key monitorable and a rating sensitivity factor. In the interim, the company’s plan of raising up to Rs 750 crore of equity capital - announced in January 2025 – is expected to partly offset the impact of accumulating losses on the networth. Any material change in the quantum of equity proposed to be raised and/or a significant delay in the timing of this infusion will be a key monitorable.

 

Post emergence of ground level challenges, the company has significantly expanded its field strength for collections and recoveries. On the business side, growth plan was calibrated to incorporate the new guardrails owing to which disbursements dropped in Q4FY25 by 75% over the previous quarter whereas disbursements for fiscal 2025 were low at Rs 5,605 crore vis-à-vis Rs 10,688 crore for the previous year. Crisil Ratings also noted that the company did not make any disbursements in the months of February, March and April 2025, however, has resumed business in May 2025. Resultantly, over fiscal 2025 - the assets under management (AUM) declined by 43% to Rs 6,819 crore as on March 31, 2025, from Rs 11,973 crore, a year ago (Rs 8,511 crore as on March 31, 2023; and Rs 6,581 crore as on March 31, 2022).

 

Nonetheless, the overall rating continues to reflect the company’s established track record in the microfinance sector along with regional diversity in asset base and healthy capitalisation. Tier I and overall capital adequacy ratios (CAR) were comfortable at 36% and gearing was low at 2.1 times on March 31, 2025. These strengths, however, are partially offset by moderation is asset quality and profitability due to susceptibility to inherent risks of the microfinance sector and average resource profile.

 

There are 14 active ISINs cumulating to a total debt of Rs 1,058 crore and term loans of Rs 178 crore as on March 31, 2025, which had covenants linked to profitability and non-performing loans. Out of these, waivers have been received for NCDs of Rs 798 crore. The company has been paying step-up interest as per the term of debenture trust deed as applicable. The covenant breaches continues to be a key monitorable.

Analytical Approach

Crisil Ratings has combined the credit risk profiles of SSFL and its subsidiaries, Criss Financial Ltd (CFL) and Caspian Financial Services Ltd (Caspian). SSFL holds 100% stake in Caspian and 99.92% stake in CFL.

 

Refer to Annexure - List of entities consolidated, which captures the list of entities considered and the analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Established market position and track record with regionally diversified presence

Incorporated in 2003, the company has an established track record of operating across business cycles and navigating through landmark challenges such as the Andhra Pradesh crisis in 2010, demonetization and the Covid-19 pandemic. As on March 31, 2025, the company had an AUM of Rs 6,819 crore (Rs 11,973 crore as on March 31, 2024, and Rs 8,511 crore as on March 31, 2023) which was diversified across 19 states and 1 union territory through a network of 1700+ branches. On the same date, at a standalone level, the highest exposure of microfinance portfolio to a single state was ~13%, against the company’s internal limit of 15% per state. Furthermore, on the same date, exposure to the top three states reduced marginally to ~38% (Odisha, Madhya Pradesh and Bihar) of the overall AUM from 39% as on March 31, 2024.

 

The company has adopted a calibrated growth strategy since issues like over-leveraging and attrition has surfaced and, its ability to combat those and regain growth momentum remains a monitorable.

 

Comfortable capitalisation metrics, the anticipated round of equity capital to partly offset the impact of accumulated losses

Capital position remains comfortable, as reflected in a reported networth of Rs 2,633 crore and on-book gearing of 2.1 times as on March 31, 2025 (Rs 3,645 crore and 2.6 times, respectively, as on March 31, 2024). On the same date, tier I and overall capital adequacy ratio (CAR) were healthy at 36%. During the decade through fiscal 2020, the company had raised about Rs 665 crore as fresh equity (including its initial public offer [IPO]) and Rs 791 crore (excluding premium/discount) through debt conversion during corporate debt restructuring (CDR). Incrementally, Rs 354 crore (excluding premium/discount) was raised as fresh cumulative convertible preference shares (CCPS), which were eventually converted into equity. In March 2022, the company raised another round of Rs 215 crore as equity share capital and Rs 85 crore as warrants, which was subsequently converted into equity.

 

In January 2025, the company has disclosed its plans to raise another round of equity up to Rs 750 crore, out of which the company plan to raise Rs 300-Rs 400 crore via rights issue by Q2FY26 – which would impart strength to the capital position amid prevailing asset quality challenges. The timing and quantum of this round of capital infusion will be monitored closely. On a steady-state basis, the company’s capital position will remain healthy backed by its philosophy of maintaining gearing below 5 times and CAR above 25%. 

 

Weaknesses:

Higher than anticipated moderation in profitability, due to asset quality remaining volatile and susceptible to inherent risks of the microfinance sector

After remaining stable for most part of fiscal 2024, SSFL’s asset quality was impacted in Q2 2025 due to emergence of ground level disruptions like over-leveraging of borrowers, prolonged impact of heat waves and elections and heightened attrition at field level. With continuation of these challenges - slippages into deeper delinquency buckets have remained elevated in the second half of fiscal 2025 as well, resulting in an adjusted GNPA of 24.9% (including write-offs) as on March 31, 2025, as against 2.2% as on March 31, 2024. Reported GNPA and NNPA increased to 5.6% and 1.2% as of March 31, 2025, from 1.5% and 0.3% as of March 31, 2024. Collection efficiency dipped to 92.0% for Q4 2025 from 92.6% in the previous quarter.

 

To address this, the company shifted its focus towards recoveries and paused onboarding new-to-credit borrowers and exercised higher focus on restoring asset quality. Further, the company decided not to extend loans to borrowers with more than three lender relationship (including Spandana) and followed a conservative approach by tightening credit controls with adoption of guardrail 2.0 since January 2025.

 

The microfinance sector has witnessed three major disruptive events in the past decade. The first was the crisis promulgated by the ordinance passed by the government of Andhra Pradesh in 2010, second was demonetisation in 2016, followed by the pandemic in March 2020. In addition, the sector has faced issues of varying intensity in several geographies. Promulgation of the ordinance on microfinance institutions (MFIs) by the government of Andhra Pradesh in 2010 demonstrated their vulnerability to regulatory and legislative risks. The ordinance triggered a chain of events that adversely affected the business models of MFIs, including that of Spandana, by impairing growth, asset quality, profitability and solvency.

 

As a lender to the economically weaker sections of the population with below-average credit risk profiles and lack of access to formal credit, SSFL’s asset quality will always remain susceptible to socio-economic disruptions that have high bearing on the cash-flows of its targeted borrower segment which includes cattle owners, vegetable vendors, tailors, tea shops, provision stores and small fabrication units.

 

Nonetheless, as an immediate impact of this moderation in asset quality, credit costs have surged from sub 3% in fiscal 2024, to 17.0% for fiscal 2025 with a sequential moderation since after Q2 2025. Correspondingly, RoMA – having remained above 4% for consecutive quarters from March 2023 to March 2024 – declined to -8.9% for fiscal 2025. Loss for Q4 2025 was reported at Rs 434 crore as against a profit of Rs 129 crore for the corresponding quarter of the previous fiscal. For fiscal 2025, the company reported a loss of Rs 1035 crore (Provision of Rs 1986 crore) as against a profit of Rs 501 crore (Provision of Rs 260 crore) for the previous fiscal. Over the near to medium term, the resolution across overdue buckets is expected to improve at a gradual pace with material improvement being visible only towards the latter half of fiscal 2026.

 

Average resource profile; ability to maintain the momentum of fund raising remains key

With an incremental cost of borrowings at ~11.9% in Q4 of fiscal 2025, the average cost of borrowing of SSFL has remained relatively high at ~12.4% for fiscal 2025 as compared to 12.0% in fiscal 2024. SSFL raised around Rs 410 crore in Q4 of fiscal 2025. The share of assignments (18.2%) and securitization (26.8%) during fiscal 2025 remained high at 45.0% of the incremental borrowings, with the composition of term loans and NCDs being 37.0% and 18.0%, respectively. Nonetheless, the funding cost remained higher than similar sized/rated players.

 

As on March 31, 2025, there are 14 active NCD ISIN’s cumulating to an outstanding debt of ~Rs 1058 crore and term loans of Rs ~178 crore, which had covenants linked to annual profitability, tangible networth and non-performing loans (NPLs). Out of these, waivers have been received for NCDs of Rs 798 crore. These covenant breaches were reported by the company as a part of declaration of financial results for the quarter ended March 31, 2025. The company has been paying step-up interest as per the term of debenture trust deed as applicable. Earlier, in Q3 2025, 7 ISINs cumulating to Rs 373 crore and term funding of Rs 268 crore had similar covenant breaches.

 

As the company resumes disbursements, its ability to source low-cost funds from diverse avenues will remain a key rating sensitivity factor.

Liquidity: Adequate

Cash and cash equivalents of SSFL stood at Rs 1,356 crore as on May 31, 2025, which adequately covers scheduled debt obligations for the following two months. The company raised Rs 4,079 crore as external funding during fiscal 2025. The business model provides the company an inherently positive asset-liability maturity profile, driven by the shorter tenure of its advances compared with its liabilities, keeping the liquidity profile comfortable.

 

ESG profile

 

Key ESG highlights

• The company's ESG performance is evolving; measures such as implementation and installation of low-consumption energy-efficient equipment, installation of sensors for water conservation and commitment to reduce waste generation are being taken by the company. 
• The company is doing corporate social responsibility (CSR) activities on continuous basis, such as installing four community water centres, promoting clean and affordable energy, conducting digital and financial literacy (DFL) programmes, and comprehensive support to underprivileged citizens by ensuring access to various government welfare schemes.
• SSFL through its lending practices has been enabling financing to new credit customers and rural areas for women empowerment and strives to provide sustainable livelihood-related financing products to its customers.
• Of the board members, 50% are independent directors with chairman also being one of the independent directors. The company has extensive investor grievance redressal disclosures and mechanism in place.

 

There is growing importance of ESG among investors and lenders. The company’s commitment to ESG will play a key role in enhancing stakeholder confidence given the substantial share of foreign investors as well as access to domestic capital markets.

Outlook: Stable

Crisil Ratings believes SSFL’s capital position will remain adequate over the medium term, supported by the planned equity infusion. Its asset quality and profitability, however, are expected to remain volatile in the near term and the pace and magnitude of correction in both these parameters will be a key rating sensitivity factor.

Rating sensitivity factors

Upward factors

• Material and sustained improvement in asset quality, resulting in RoMA improving to, and sustainably remaining above, 2%
• Substantial improvement in the resource profile with reduction in cost of borrowing
• Sustained recovery in business operations

 

Downward factors

• Lack of sustained improvement in asset quality leading to prolonged weakness in earnings profile
• Any material change in the quantum of equity proposed to be raised and/or a significant delay in the timing of this infusion
• Moderation in capitalization marked by a decline in tier I CAR to, and it remaining below 18% for a prolonged period
• Weakening in resource profile evidenced by accelerated retraction of debt lines from lenders or significant increase in cost of borrowing - indicating dilution in stakeholder confidence

About the Company

SSFL is a public limited company incorporated under the provisions of the Companies Act, 1956, on March 10, 2003. It was registered as a non-deposit accepting NBFC with the Reserve Bank of India and was classified as an NBFC-MFI effective April 13, 2015. The shares of SSFL were listed on the stock exchanges in India in August 2019 pursuant to the IPO of equity shares. SSFL, along with its subsidiaries, is engaged in lending, providing small-value unsecured loans to low-income customers in semi-urban and rural areas. The tenure of these loans is generally 1-2 years. While SSFL extends microfinance loans, its subsidiaries extend other services such as loans against property, business loans and personal loans. Kedaara Capital, the largest investor in the company, held ~48% stake in it as on March 31, 2025. Further, it also has four nominee directors on the board of the company.

Key Financial Indicators (Consolidated)

Particulars	Unit	Mar-25	Mar-24
Total managed assets	Rs crore	9012	14342
Total income	Rs crore	2424	2511
Profit after tax	Rs crore	-1035	501
Gross NPAs	%	5.6	1.5
Gearing	Times	2.1	2.6
Return on managed assets	%	-8.9	4.1

 

Any other information: Not applicable

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
Criss Financial Ltd (CFL)	Full	Subsidiaries
Caspian Financial Services Ltd (Caspian)	Full	Subsidiaries