Rationale

 The ratings for IIFL Wealth Management Limited (IWML; standalone) are based on a consolidated view of IWML and its subsidiaries (referred to as IIFL Wealth/the Group/the company; consolidated), given the common senior management team and the strong financial and operational synergies. The ratings factor in IIFL Wealth's leading market position, as reflected in the assets under advice, management and distribution of Rs. 2,62,780 crore as on December 31, 2021. The company's senior management team has significant experience and expertise in the wealth management business, which has helped it grow into a leading player in the wealth management industry. The franchisee built over the years has helped ensure low client attrition (loss of assets under management (AUM) due to client attrition of 0.5% as of September 30, 2021). ICRA also considers the comfortable capitalisation with the demonstrated ability to raise equity. While the Group's profitability had declined in FY2020 due to the change in the revenue recognition model to trail basis, the same improved in FY2021 and 9M FY2022 (profit after tax (PAT)/average total assets (ATA) of 5% and return on equity (RoE) of 19% in 9M FY2022 compared to 3% and 12%, respectively, in 9M FY2021). ICRA draws comfort from the management's strategy of focusing on increasing the share of annual recurring assets (53% as of December 31, 2021, 49% as on March 31, 2021 and 40% as on March 31, 2020) instead of transaction/brokerage assets, which could help reduce the volatility in income. ICRA takes into consideration the modest lending operations with a loan book of Rs. 3,983 crore as on December 31, 2021. Moreover, the top 20 exposures formed 50% of the total loans and 57% of the consolidated net worth as on September 30, 2021. The loans are primarily to IIFL Wealth's clients. The ratings also factor in the concentration of the funding, which is largely through its own client base in the form of principal protected market linked debentures (PP-MLDs). ICRA takes note of the increase in the share of commercial papers (CP) to ~30-35% of the consolidated borrowings. The same is, however, expected to decline to ~20% in six months.