Rationale

The ratings factor in the demonstrated track record and established franchise of the JM Financial Group (the Group) in the domestic financial services industry, its diversified revenue stream and healthy financial profile with steady profitability and an adequate capitalisation level. While assigning the ratings, ICRA has taken a consolidated view of the Group (i.e. JM Financial Limited (JMFL) on a consolidated basis) due to the close linkages between the Group entities, given the common promoters and senior management team, shared brand name, and strong financial and operational synergies. Moreover, ICRA expects the financial, managerial and operational support from the Group to continue to be available to all key Group companies. The strengths are partially offset by the exposure to the volatility in capital markets, the inherent risk profile of key segments like real estate and promoter funding, and the portfolio concentration in the wholesale lending segment (~85% of the total book as on December 31, 2019), which could result in a sharp deterioration in the asset quality in case of slippages. The risks are further aggravated by the current environment, given the continued slowdown in the real estate sector coupled with the liquidity squeeze faced by developers and financiers. The asset quality, though healthy, moderated in recent quarters with the gross non-performing assets (GNPAs) increasing to 1.56% of the loan book as on December 31, 2019 (1.27% as on September 30, 2019) from 0.68% as on March 31, 2019. The SMA 2 accounts were marginally lower at 1.18% of the loan book as on December 31, 2019 (2.40% as on September 30, 2019) compared to 1.25% as on March 31, 2019. Further, a sizeable share of the loans is under moratorium, typical of the industry, which has also helped support the asset quality.