Rationale

ICRA has withdrawn the ratings assigned to the Rs. 434.70-crore NCD programme and the Rs. 67.40-crore MLD (PP) programme of JM Financial Products Limited (JMFPL) as there is no amount outstanding against these rated instruments. The ratings have been withdrawn at the request of the company and as per ICRA's policy on the withdrawal and suspension of credit ratings. 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 (~87% of the total book as on December 31, 2020). The real estate sector has been facing a prolonged slowdown due to subdued sales and lack of funding access. The spread of the Covid-19 pandemic and the resulting nationwide lockdown further impacted the sector. While the pressure on the developers during the lockdown was mitigated due to the moratorium offered for their loan instalments under the Covid-19-related regulatory package announced by the Reserve Bank of India (RBI), a sustained pickup in sales across geographies is key for the developers over the medium term. JMFL's asset quality, though healthy, moderated in recent quarters with the gross non-performing assets (GNPAs) increasing to 1.79%1 of the loan book as on December 31, 2020 from 1.56% as on December 31, 2019 and 1.65% as on March 31, 2020 (partly due to the base effect of a declining loan book). The special mention accounts-2 (SMA 2) also increased to 6.19%1 of the loan book as on December 31, 2020 from 1.18% as on December 31, 2019 and 2.64% as on March 31, 2020. While the asset quality remains a key monitorable, the presence of adequate collateral and the Group's conservative underwriting norms, adequate risk management systems and proactive monitoring and resolution process provide comfort. The Group's capitalisation profile is healthy, with the leverage being lower than that of its peers, which provides it with financial flexibility as well as the ability to absorb losses, if needed. JMFL's consolidated net worth was Rs. 9,314 crore as on December 31, 2020, with a capital adequacy ratio (CRAR) of 41.4%. The company raised equity capital of Rs. 770 crore in June 2020 to shield itself from the uncertainties surrounding the pandemic and its impact on the economy. Supported by the capital raise, the Group's net gearing improved to 0.72 times as on December 31, 2020 from 1.04 times as on March 31, 2020. The Group made additional provisions (including a fair value loss) of Rs. 175.21 crore in Q4 FY2020 and Rs. 185.12 crore in 9M FY2021 (1.7% of average total assets on a cumulative basis) towards the potential impact of the pandemic, as assessed by the management, on the Group's business. Going forward, the Group's ability to manage its asset quality over the near-tomedium-term would remain critical. The ratings also take into account the risks associated with the distressed assets business, given the nature of the underlying assets, the focus on large ticket exposures, the protracted resolution process and the uncertainty associated with the same. While assigning the ratings, ICRA has noted the continued challenges in resource mobilisation stemming from the current operating environment and the risk-averse sentiment of investors towards non-banks, particularly wholesale-oriented entities. The Group's elevated cost of funds, despite a ~30 bps decline in 9M FY2021 to 9.9% (it had increased by ~80 bps in FY2020), could have a bearing on the Group's profitability and growth potential. However, ICRA notes that the Group raised ~Rs. 370 crore of term loans and Rs. 1,392 crore of NCDs in 9M FY2021, and that the cost of incremental borrowings has been declining. Following the onset of the liquidity crisis for non-banking financial companies (NBFCs), there has been a change in the Group's debt maturity profile with the share of short-term debt declining to ~9% as on March 31, 2020 from ~27% as on March 31, 2019. The share of short-term debt has since increased to ~14% as on December 31, 2020, largely in line with the increase in short-term assets. Given the prominence of the lending business in the Group's revenue profile, its ability to manage its asset and liability profile, particularly considering the current operating environment, would remain critical. ICRA takes comfort from the Group's adequate liquid assets and its ability to raise funds from the market when required, as demonstrated in the past. As on December 31, 2020, the Group had cash and cash equivalents of Rs. 3,716 crore (~36% of gross debt) and unutilised credit lines of Rs. 800 crore, covering the short-term debt repayments. Going forward, the Group's ability to generate adequate fee income and scale up its lending operations, while keeping the asset quality under check and maintaining a healthy profitability, capitalisation and asset liability profile, would remain critical from a credit perspective.