Crisil Ratings stated that 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 31 March 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 31 March 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.
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.
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.
Spandana Sphoorty Financial (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.