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Summary of rating action

Rationale

The rating action considers the improvement in CreditAccess Grameen Limited’s (CA Grameen) asset quality and earnings performance in 9M FY2023. The consolidated’ 0+days past due (dpd) and 90+dpd improved to 2.2% and 1.3%, respectively, as of December 2022 from 3.1% and 1.7%, respectively, as of September 2022 and 4.9% and 2.7%, respectively, as of March 2022 (12.8% and 5.8% respectively as of September 2021 and 6.8% and 3.3%, respectively, as of March 2021). ICRA notes that the improvement in the asset quality was supported by the normalisation of the collection efficiency, which stood at 98.0% ona consolidated basis as of December 2022 (CA Grameen’s pre-Covid-19 pandemic collection efficiency stood at 98.3% as of December 2019).

CA Grameen’s consolidated portfolio of Rs. 17,786 crore, as of December 2022, is the highest in the non-banking financial company — microfinance institution (NBFC-MFI) industry. It grew by 22% on a year-on-year (YoY) basis between Q3 FY2022 and Q3 FY2023. The consolidated net profitability (return on average managed assets; ROMA) improved to 3.6% (annualised) in 9M FY2023 and 2.0% in FY2022 from 0.9% in FY2021. It improved steadily from Q3 FY2022 as the asset quality and growth trend revived, post the impact of the second wave of the pandemic in Q1/Q2 FY2022. ICRA expects CA Grameen’s earnings performance to improve steadily going forward, with the moderation in the credit costs and the improvement in the portfolio yields in a steady state environment.

The ratings continue to factor in CA Grameen’s established presence in the microfinance industry and its comfortable capital profile (consolidated managed gearing stood at 3.4’ times as of December 2022). As of December 31, 2022, CA Grameen held a stake of 76.32% in Madura Micro Finance Limited (MMEL). ICRA notes that MMFL merged with CA Grameen with effect from February 15, 2023, post approval of the scheme of amalgamation by the National Company Law Tribunal (NCLT), Chennai Bench and NCLT, Bengaluru Bench and the filing of the final order with the Registrar of Companies.

The ratings also factor in the risks inherent in the microfinance business considering the modest borrower profile and CA Grameen’s regionally concentrated portfolio with Karnataka accounting for 34.7% of the consolidated portfolio as of December 2022 (35.9% as on March 31, 2022). CA Grameen has been steadily expanding its geographical presence in the recent past and had operations in 15 states/Union Territories (UTs) on a consolidated basis as of December 2022. ICRA takes note of the company’s significant rural presence and its predominantly weekly/bi-weekly collection model, which aids better client engagement levels. The revised guidelines for the microfinance industry have provided the players, including CA Grameen, with better pricing ability in view of the underlying risks and has also broadened the target segment.

ICRA has upgraded the long-term rating to [ICRA]AA- from [ICRA]A+ while revising the outlook to Stable from Positive and has subsequently withdrawn the rating on the Rs. 170.90-crore non-convertible debenture (NCD) programme, as the instrument has been fully redeemed with no amount outstanding against the same. The rating was withdrawn as per ICRA’s policy on withdrawal of credit ratings.

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