Detailed Rationale

CRISIL Ratings has reaffirmed its rating on the long term bank loan facilities of CreditAccess Grameen Limited (CAGL) at ‘CRISIL AA-/Stable’.

 

The rating continues to factor-in strong market position and long track record of CAGL in the Indian microfinance sector, healthy asset quality maintained across cycles, adequate capitalization and, strong earnings profile.

 

CAGL is the largest microfinance MFI in the country with a track record of 25 years. As of September 30, 2024, AUM stood at Rs 25,133 crore as compared to Rs 26,714 crore as on March 31, 2024, registering a slight degrowth of ~6%. The company’s GNPA (largely at 60+ dpd) has inched up marginally, in line with industry trends, during the first half of fiscal 2025 to 2.4% as on September 30, 2024, from 1.2% as on March 31, 2024, and 1.2% as on March 31, 2023, impacted by the increase in indebtedness levels across customers, along with external challenges like heat waves, elections and ground level attrition. Nevertheless, average monthly collection efficiency has remained stable at ~97% during H1 of fiscal 2025.

 

The company has adequate capitalisation supported by its internal accruals and parentage of CAI which has demonstrated track record of extending equity support to the company. As of September 30, 2024, networth stood at Rs 6,988 crore as compared to Rs 6,570 crore in March 2024 (Rs 5,107 crore in March 2023). Gearing has also remained comfortable at 2.7 times as of September 30, 2024 (3.3 times as of March 2024). Over a decade of association with CAI as its majority stakeholder (which holds 66.54% stake in CAGL), the latter has received need-based capital from it which has allowed the company to maintain growth momentum while maintaining adequate cushion to absorb risks alongside.

 

In terms of earnings, the return on managed assets (ROMA) of the company stood at 4.1% (annualised) during the first half of fiscal 2025, sequentially reducing from 5.4% during the previous fiscal, however, it remains better than the industry average. Credit costs inched up during the same period to 4.2% (annualised), on account of conservative provisioning policy and early risk recognition, with the company holding Rs 431 crore (1.79%) higher provisioning over PAR 90+, Rs 629.2 crore (2.56%) higher compared to IRAC prudential norms, and Rs 102 crore higher provisions compared to the NBFC industry. Nevertheless, CAGL has sustained its operating expenses across business cycles, remaining in the range of 3.9% - 4.1% during the past 3-4 fiscals. NIMs have improved during the past 2 fiscals to 13% (annualised) during H1 of fiscal 2025 (12% during previous fiscal). While profitability is expected to be less during the current fiscal, it will continue to be better than its peers.

 

These strengths are partially offset by high, though improved substantially, geographical concentration in portfolio, inherently modest credit risk profile of the borrowers and, high susceptibility of asset quality to local socio-political issues.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has considered the standalone business and financial risk profiles of CAGL.

Key Rating Drivers & Detailed Description

Strengths:

Strong market position in the Indian microfinance sector with long track record

Having grown at a 3-year CAGR of 25.3% through fiscal 2024, CAGL remains the largest standalone microfinance institution in the country with an established track record of over 2.5 decades. As of September 2024, the company had an AUM of Rs 25,133 crore of which ~3.0% was off book.  The company has been able to scale the business at a robust rate in terms of size as well as operational presence, and all this while maintaining the operational parameters and infrastructure at comfortable levels. The company’s portfolio currently focuses on the microfinance business which is its core competence. However, as customers with long credit history and association with CAGL have matured across loan cycles, the company is building its retail finance portfolio. As of September 2024, the company had a network of 2031 branches across 16 states and 1 union territory and, a major footprint in the west and south.

 

Adequate capitalization

In relation to its scale and nature of operations, CAGL’s capitalisation is adequate, supported by its internal accruals and parentage of CAI which has demonstrated track record of extending equity support to the company. On September 30, 2024 - CAGL had a reported networth of Rs 6,988 crore and an overall capital adequacy ratio of 26%. Gearing on the same date stood at 2.7 times and has remained comfortable in the past as well. Over a decade of association with CAI as its majority stakeholder (which holds 66% stake in CAGL), the latter has received need-based capital from it which has allowed the company to maintain growth momentum while maintaining adequate cushion to absorb risks alongside. In the near to medium term, CAGL’s capital position is expected to remain adequate with a steady state gearing philosophy of 4 times and a CAR of above 20%.

 

Strong earnings profile despite inching up of credit costs

The ROMA of the company stood at 4.1% (annualised) during the first half of fiscal 2025, sequentially reducing from 5.4% during the previous fiscal, however, it remains better than the industry average. Credit costs inched up during the same period to 4.2% (annualised). Nevertheless, CAGL has sustained its operating expenses across business cycles, remaining in the range of 3.9% - 4.1% during the past 3-4 fiscals. NIMs have improved during the past 2 fiscals to 13% (annualised) during H1 of fiscal 2025 (12% during previous fiscal). While profitability is expected to be less during the current fiscal, it will continue to be better than its peers.

 

Stable asset quality maintained across cycles

After having operated at low delinquency levels over many years, CAGL’s asset quality moderated during recent sectoral challenges. The company’s collection efficiency remains volatile and for September 2024 – CAGL reported a collection efficiency (excluding arrears) of 96.3%. The company had a restructured portfolio of about Rs 1 crore only as on September 30, 2024. As on September 30, 2024, CAGL reported a GNPA and NNPA of 2.4% and 0.8% respectively as against 1.2% and 0.4%, respectively in March 2024 (1.2% and 0.4%, respectively as on March 31, 2023). CRISIL ratings notes that the company didn’t sell any portfolio to ARCs and wrote off Rs 348 crore (1.4% of the portfolio as of September 2024) in the last 12 months. The 90+ Adjusted (including last 12 months write-offs) stood at 3.1% as on September 30, 2024. While the company’s asset quality performance has been resilient during challenging times, its ability to sustain the current level of asset quality position remains monitorable from an earnings perspective. CAGL’s risk management practices have remained sound and evolved over the years – to suit the increasing scale of business. However, the key maxims of the Grameen business model like focus on rural markets, weekly kendra meetings and collections, attendance discipline, audit, etc. have remained intact.  The company has garnered a sound understanding of the business model and customer group over the years. 90% of the field employees are hired as freshers and, from neighboring livelihoods so as to have a strong connect with the borrowers. Each such employee undergoes 14-15 days pre-hiring training and during their employment tenure – all branch officers have a fixed rotation policy. CAGL’s strong organizational policies and differentiated incentive structure helps the company to maintain employee attrition at lower levels. In terms of credit appraisal, new customers undergo a mandatory 3-day CGT/GRT training and a home visit by the loan officer. Credit bureau data is checked before disbursals, over 99% of which are in cashless mode and most of the collections happen weekly which result in small installments. The company also has an audit team of 399 members which conducts – head office, branch and field audits. Accredited to these practices, CAGL’s ultimate credit loss, in the normal course of business, has remained controlled.

 

Weakness:

High regional concentration in operations

Despite gradual diversification across states over the last few years, the regional concentration in CAGL’s loan portfolio remains high – with top 3 states accounting for over 72% of the AUM as on September 30, 2024. From 70% in March 2015, the share of Karnataka, which is the largest state in terms of concentration – reduced to 51.5% of the loan book - by the end of March 2019. This was followed by Maharashtra accounting for 26.1% of the AUM and another 10.7% being housed in Tamil Nadu. With MMFL’s on-boarding in fiscal 2020, there has been further improvement on this front. On September 30, 2024 – exposure to Karnataka and Maharashtra reduced to 31.4% and 20.8% respectively, and in Tamil Nadu– exposure stood at 20.0%. Even at a district level – concentration has remained on a higher side with top 10 districts accounting for 18% of the AUM as of September 30, 2024, while it has reduced from 32% level as of March 2019.

 

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

A significant portion of the company’s portfolio comprises loans given to individuals under the joint-liability group (JLG) mechanism. Its customers generally have below-average credit risk profiles with lack of access to formal credit. Such borrowers are typically 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, demonetization in 2016, Covid-19 pandemic and sociopolitical issues in certain states. These events have adversely affected the sector, elevating delinquencies and hurting the profitability and capitalisation metrics of non-banking financial company microfinance institutions (NBFC-MFIs). These challenges underscore the vulnerability of the microfinance business model to external risks. Covid-19, in particular, 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, CAGL 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. Further, 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: Strong

As on October 31, 2024, cash and cash equivalents stood at Rs 2482 crore. The liquidity cover for debt obligations arising over the following 2 months, without factoring in any roll-over or any incremental collections or unutilized bank lines and assuming 50% collection efficiency, was at around 1.6 times. Based on ALM statement dated September 30, 2024 – there were no negative cumulative mismatches in any time in short term and long-term buckets.

 

Key ESG highlights of the CAGL

 

• CAGL aims to become an industry leader in an inclusive and sustainable workplace by maintaining and continuing to lead the industry as a great place to work by integrating global gender-inclusive best practices.
• CAGL through its lending practices has been enabling financing to new to credit customers, rural areas, for women empowerment and strives to provide sustainable livelihood related financing products for its customers.
• The company is doing CSR activities on a continuous basis through social arm, CA India Foundation focusing on areas of Education, Livelihood, Health, and Rural Public Institution Development spanning the value chain.
• Of the board members, 50% are independent directors with chairman also being one of the independent director. 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 CAGL will sustain its market position in the microfinance sector and maintain healthy capitalization metrics. The business risk profile will benefit from the expanding scale of operations and improving asset quality.

Rating Sensitivity Factors

Upward Factors

• Overall profitability (RoMA) remaining above 4% while maintaining adjusted gearing at 3-3.5 times.
• Geographical diversification in operations alongside scale with reduction in state-level concentration
• Controlled asset quality metrics and credit costs

 

Downward Factors

• Deterioration in asset quality, leading to weakness in overall profitability reflected in RoMA remaining below 3% on sustained basis. 
• Moderation in capitalization – evidenced by gearing increasing to and remaining above 5 times commensurate to a decline in tier I CAR to below 18% on sustained basis

About the Company

Established in 1991 as Sanni Collection Private Limited in West Bengal, CAGL commenced its microfinance operations in 1998 as a division under T. Muniswamappa Trust (TMT), a registered public charitable trust/NGO. In 2007, it transformed into a microfinance institution under the brand name Grameen Koota and subsequently in the year 2016, the company started its retail finance portfolio. In 2018, its name was changed to CreditAccess Grameen Ltd and the company got listed in the same year. Subsequently in 2020, it acquired 76% stake in a Tamil Nadu based MFI – MMFL which it will eventually increase to 100% by March 3, 2023. The company’s operations are spread across 17 states (including 1 Union Territory) with a borrower base of 4.6 million

Key Financial Indicators

Particulars as on 31	Unit	H1 2025	Mar-24	Mar-23	Mar-22
Assets under management	Rs crore	25,133	26,714	21,031	16,599
Total income	Rs crore	2967	5173	3551	2749
Profit after tax (PAT)	Rs crore	584	1446	826	357
Return on managed assets#	%	4.1	5.4	3.9	2.0
GNPA	%	2.4	1.2	1.2	3.6
Gearing	Times	2.7	3.3	3.2	3.1

#Annualised 

Any other information: Not Applicable