Rationale

ICRA has taken a consolidated view of MAS Financial Services Limited (MFSL) and its wholly-owned subsidiary, MAS Rural Housing and Mortgage Finance Limited (MRHMFL), together referred to as MAS owing to their common management and shared infrastructure. The revision in the outlook factors in the expectation of steady growth in MAS' assets under management (AUM) along with its ability to keep the asset quality under control and maintain healthy profitability metrics. Further, ICRA expects the company to keep its borrowers' concentration under control, given the high vulnerability of its end borrowers. Notwithstanding the recent slippage on the asset quality front because of the unfavourable environment simulated by the Covid-19 pandemic, the same remains comfortable with the gross stage 3 (GS-3) at 2.3% and net stage 3 (NS-3) at 1.8% as on December 31, 2021. The company's ability to further scale up its operations, sustain/enhance its profitability and improve its asset quality indicators will remain a monitorable. The rating also continues to factor in MAS' established track record for more than two decades backed by the long-standing experience of the promoters in the retail financing business. This, coupled with its strong franchise in the western states of India provides support to its credit profile. The rating also takes into consideration the adequate capitalisation profile. MFSL reported a capital adequacy ratio (CAR) of 27.4% as on December 31, 2021 against the regulatory requirement of 15%. The current capitalisation, along with internal accruals, is adequate to support the company's near-to-medium-term growth plans as it targets to grow its book in the range of 20-25% during the next 2-3 years. The company has long-standing funding relationships with banks and a diversified lender base of ~30 lenders as on December 31, 2021. Further, the rating factors in the well-matched asset-liability maturity profile with average asset maturity of 18-20 months and term loans and non-convertible debentures (NCDs) with a tenor of 3-5 years. The company maintains healthy liquidity in the form of on-book balance and sanctioned lines to meet its funding requirements in the near term. The rating is, however, constrained by MAS' relatively high geographical concentration with the top 3 states comprising ~79% of its AUM as on December 31, 2021. Moreover, MFSL has direct (through retail) as well as indirect (through corporate loans) exposure to borrowers with higher susceptibility to income shocks. While the corporate book has exhibited a comfortable asset quality thus far, MFSL's ability to scale up its operations while not increasing its concentration risk towards the corporate loan book, going forward, remains a key monitorable. ICRA notes that, over the years, MAS has tightened its credit norms on the retail side. However, the vulnerability in the asset quality metrics persists, especially in the micro, small and medium enterprise (MSME)/small and medium enterprise (SME) and two-wheeler financing segments, where the eventual loss given default could be higher. The company's ability to maintain strict control over its asset quality indicators would remain a rating sensitivity. The rating is also constrained by the lack of diversity in earnings as the revenue is largely derived from the interest income from the portfolio advances.