Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the certificate of deposit programme of Suryoday Small Finance Bank Ltd (Suryoday SFB).

 

The rating continues to reflect the strong capitalisation of the bank, steady traction in retail term deposits, and extensive experience of the board and senior management. These strengths are partially offset by a moderate earnings profile, susceptibility of asset quality to the microfinance sector and modest credit risk profile of the borrowers with low seasoning of the non-microfinance business.

 

The bank’s assets under management (AUM) grew by 41% year on year in fiscal 2024 to Rs 8,650 crore as on March 31, 2024 from Rs 6,114 crore as on March 31, 2023. Growth was driven by pent up demand across asset classes resulting in higher disbursements with the same growing by 37% in fiscal 2024. In H1 2025, AUM further grew by 8% year to date to Rs 9,360 crore. Microfinance loans form a dominant proportion of overall advances at 56% (although improved from 59% in FY23) with the balance 44% comprising home loans, commercial vehicle loans, and loan against property. Going ahead, ability to profitably scale up the non-microfinance portfolio will remain a monitorable over the medium term.

 

The Bank has healthy capitalization with total CAR at 24.95% as of September 30, 2024. The gross non-performing assets (GNPA) and net NPA (NNPA) have remained stable at 3.0% and 0.8%, respectively, as of September 2024 compared to 2.9% and 0.8%, respectively, as of March 2024 (2.8% and 0.8% as on March 2023). The bank reported a profit of Rs 115 crore in the first-half of the current fiscal compared to Rs 98 crore in the same period last fiscal. Profit for the year ended 2024 improved significantly from Rs 77 crore in fiscal 2023 to Rs 215.96 crore in fiscal 2024. Over the medium term, the ability of the bank to sustain its asset quality and earnings profile will remain key rating sensitivity factors.

 

On the liabilities side, the traction has continued, evidenced by a 51% y-o-y growth in deposit base in fiscal 2024 and another 15% year to date (YTD) in H1 2025, albeit on a low base. As on September 30, 2024, the bank’s total deposit base stood at Rs 8,851 crore. Retail deposits (retail term deposit + CASA) formed 80% of total deposits and CASA formed 17.9% of the total deposits.

Analytical Approach

CRISIL Ratings has assessed the standalone credit risk profile of Suryoday SFB for arriving at its rating.

Key Rating Drivers & Detailed Description

Strengths:

• Strong capitalisation: Suryoday’s capital position remained strong reflected by total CAR of 24.95% as of September 30, 2024 (28.4% as on March 31, 2024). Networth as on September 30, 2024 stood at Rs  1,925 crore as against Rs  1,805 crore as on March 31, 2024. The CAR is likely to be healthy at above 20% while gearing should remain below 4 times, over the medium term. The bank had last raised equity of Rs 248 crore through its IPO in March 2021 which strengthened its capitalization. Additionally, the bank has had adequate flexibility to raise capital in the past through capital raises of Rs 288 crore in fiscal 2017, Rs 25.6 crore in 2018, around Rs 248 crore of equity in 2019 and Rs 63 crore of equity in 2020.

 

• Steady traction in retail term deposits: The deposit base has registered steady growth since inception with an increasing share of retail deposits as a proportion of total deposits. Deposits grew by 51% in fiscal 2024 to Rs 7,777 crore. The share of retail deposits increased to 80% as of March 2024 from 50.3% in March 2020. In the first-half of fiscal 2025, the Bank had a deposit base of Rs 8,851 crore, of which 80% were retail deposits. Moreover, over 100% of the bank’s bulk deposits are non-callable in nature.

 

Granularity of deposits has also improved as the share of term deposit in the less than Rs 15 lakh ticket size increased to 43% in March 2024 from 40% in March 2021. Of the total term deposits, as on March 31, 2024, 58% were for a period exceeding a year. This helps contain the risk of unexpected reduction in deposit base.

 

Traction in CASA has remained low and stood at 17.9% of total deposit base as of September 30, 2024, as compared to 20.0% of total deposit base and as of March 31, 2024.

 

• Extensive experience of the board and senior management: The senior management has longstanding experience in the financial services sector. Mr Baskar Babu, the managing director and Chief Executive Officer, is one of the promoters who has held senior positions in several institutions. Board of directors and senior management comprise experienced and renowned professionals from the financial services sector, strongly oriented towards establishing high-quality and scalable systems and processes. 

 

Weaknesses:

• Moderate earning profile: The earnings profile has seen some fluctuations over the years. Upon transition from a microfinance institution to a bank in 2017, profitability recovered over fiscals 2019-20 after a downtrend in 2018.  However, earnings were affected in fiscal 2021 due to interest reversal on account of higher NPAs, leading to decline in net interest income. Pandemic-related stress led to sharp decline in profit after tax (PAT) to Rs 12 crore in fiscal 2021 (Rs 111 crore in fiscal 2020) and subsequently to losses of Rs 93 crore in fiscal 2022 on the back of higher credit costs.

 

In fiscal 2023, the bank has seen improving trends in PAT to Rs 78 crore with RoA of 0.9%. There was significant improvement in fiscal 2024 with PAT increasing to Rs  215.96 crore and RoA of 2.0% in fiscal 2024 due to sharp drop in credit costs to 1.5% of average assets in fiscal 2024 as compared to 5.3% in fiscal 2022. Profitability trends have held up in 1HFY2025 as well. Going ahead, the ability of the bank to sustain its overall profitability, particularly with exposure to the MFI segment, even as it scales up its business across multiple segments will remain a key monitorable.

 

• Asset quality vulnerable to performance of underlying sector: The bank had legacy issues impacting asset quality owing to the pandemic disrupting cash flows and repayment capabilities of several borrowers. However, the same was overcome by improvement in collection processes and sale of some of the impacted portfolio to an asset reconstruction company in fiscal 2023, which led to a sharp dip in the GNPA from 11.2% as on March 31, 2022 to 3.1% as on March 31, 2023. Asset quality remained stable with GNPA and NNPA at 2.9% and 0.8%, respectively in March 2024.The GNPA reduction is also supported by write offs of Rs 274 crore in fiscal 2023, Rs 103 crore in fiscal 2024 and Rs 146 crore for the first half of fiscal 2025. Additionally, the bank has an outstanding standard restructured portfolio of around Rs 11 crore as of March 31, 2024 (0.1% of the AUM) As of September 2024, GNPA and NNPA stood at 3.0% and 0.8%, respectively with provisioning coverage ratio of 74%.

 

While strong capitalisation provides a buffer against asset quality deterioration, the ability of the bank to manage the potential sectoral risks in the micro finance segments, which forms around 56% of the total AUM and reinstate collection efficiency along with curtailing early delinquency will be a monitorable.

 

• Modest credit risk profile of the borrowers and low seasoning in the non-microfinance portfolio: A significant portion of the portfolio (56% in 2024) comprises microfinance loans to clients with below-average credit risk profiles and lack of access to formal credit. These customers belong to the semi-skilled self-employed category with volatile incomes that depend on the local economy. Recently due to over-leveraged borrowers and ground-level operational challenges across the industry given elections and intense heat wave coupled with Karza mukt bharat abhiyan campaign, there has been a spillover effect of the stress in certain geographies, thereby putting pressure on collections. This segment of borrowers continues to be subjected to idiosyncratic risks on account of socio-political factors.

 

As far as the non-microfinance segment is concerned (accounts for 44% of the AUM), the bank’s track record is limited, with low vintage in divisions such as commercial vehicle loans, home loans, and loan against property. The overall portfolio is distributed across Maharashtra (29%), Tamil Nadu (26%), Odisha (13%), Gujarat (12%), Karnataka (6%) and Madhya Pradesh (7%) as of Sep 2024. The Bank also has limited presence in Chhattisgarh, Puducherry, Telangana, Rajasthan, Uttar Pradesh, Chandigarh and Delhi. 

 

As the bank intends to increase share of the non-microfinance segments, ability to maintain sound asset quality while managing growth and profitability across economic cycles would be a key monitorable

Liquidity: Strong

Liquidity coverage ratio was healthy at 147.22% as on September 30, 2024. The management has maintained very high liquidity during this period, with excess statutory liquidity ratio of 16% as of June 2024. Moreover, the bank has access to systemic liquidity facilities such as liquidity adjustment facilities and call money market instruments which can be utilized if need be. 

Rating sensitivity factors

Downward factors:

• Moderation in asset quality alongside growth in non-microfinance segments leading to potential weakening in profitability and capital position
• Inability to garner retail deposits leading to reduction in share in the total deposit base to below 50% for a prolonged period

About the Company

Suryoday SFB started as a non-banking financial institution (Suryoday Micro Finance Ltd) in November 2008, providing micro loans to women in urban and semi-urban areas under the joint liability group model of lending. It commenced operations as a small finance bank on January 23, 2017 and received the status of a scheduled commercial bank in fiscal 2018. As of September 2024, Suryoday SFB had operations across 15 states and Union Territories, catering to 32.4 lakh unique customers through 704 branches. The loan AUM stood at Rs 9,360 crore as on September 30, 2024. The bank also had outstanding deposits aggregating Rs 8,8 51 crore as of September 30,2024.

Key Financial Indicators

Particulars for the period-ended	Unit	Mar-24	Mar-23	Mar-22
Total assets	Rs.Cr.	12,377	9,878	8,180
Total income	Rs.Cr.	1,808	1,281	1,035
PAT	Rs.Cr.	216	78	(93)
Gross NPA	%	2.9	3.1	11.8
Overall CAR	%	28.4	33.7	37.9
Return on assets	%	2.0	0.9	(1.2)

 

Particulars for the period-ended	Unit	H1 2025	H1 2024
Total assets	Rs.Cr.	13,499	10,856
Total income	Rs.Cr.	1,113	836
PAT	Rs.Cr.	115	98
Gross NPA	%	3.0	2.9
Overall CAR	%	24.95	30.2
Return on assets@	%	1.8	1.9

@Annualised

Any other information: Not Applicable