Rationale

The ratings factor in the established track record and position 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 adequate capitalisation level. The ratings also factor in the healthy fee income arising from the agency-based business, which has supported the earnings profile. While arriving at 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, common promoters and senior management team, shared brand name, and strong financial and operational synergies. ICRA expects 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, portfolio concentration given the focus on wholesale lending, and the inherent risk profile of the key segments (real estate and bespoke funding1 accounted for ~82% of the total book as on December 31, 2021). JMFL witnessed a moderation in its asset quality in the recent past with its gross non-performing assets (GNPAs) increasing to 3.5% of advances (net non-performing assets; NNPAs – 2.0%) as of March 31, 2021 from 1.7% as of March 31, 2020 (NNPA of 1.1%). While the GNPAs improved to 2.3% (NNPAs of 1.4%) as on September 30, 2021, the same inched up to 4.4% (2.8%) as on December 31, 2021. ICRA notes that the total stressed assets (GNPAs + special mention accounts (SMA) 2) have remained largely steady. Additionally, the Group has provided relief through the extension of the date of commencement of commercial operations (DCCO) to ~24% of the total loan book as on December 31, 2021. The presence of adequate collateral and the Group's underwriting and monitoring processes and systems provide comfort. Also, the Group's healthy capitalisation profile provides it with the ability to absorb losses if required. The ratings also factor in the risks associated with the distressed assets business, the focus on large-ticket exposures and the high portfolio concentration. The protracted resolution process and associated uncertainties can lead to variability in earnings and cashflows. Going forward, the Group's ability to ensure steady collections (including recoveries in distressed assets business) and maintain a healthy asset quality will remain critical. While reaffirming the rating, ICRA takes note of the challenges in resource mobilisation stemming from the operating environment and the risk-averse sentiment of investors towards non-banks, particularly wholesale-oriented entities. ICRA also factors in the uptick in fund-raising in the recent past, with an attempt to diversify the resource profile in terms of investors and instrument. Though the quantum remains below the pre-September 2018 level, it is in accordance with the Group‘s revised growth plans. Going forward, the Group's ability to continue to raise funds at regular intervals from a diversified investor base at competitive rates remains monitorable. 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 also be monitorable.