Rationale

 The rating action factors in Satin Creditcare Network Ltd.'s (SCNL) established presence in the Indian microfinance landscape as one of the largest players in the sector as per portfolio size. SCNL reported consolidated assets under management (AUM) of Rs. 7,569 crore as on June 30, 2022 (after write-offs of ~Rs. 275 crore in Q1 FY2023) compared to Rs. 7,617 crore as on March 31, 2022. Further, its healthy geographical diversification, experienced management team, and good systems and processes support its credit profile. The ratings also factor in the company's diversified funding profile and its strong liquidity position in the form of on-book liquidity and unavailed sanctioned lines. The ratings, however, also consider the weakening of SCNL's consolidated profitability profile, given the sizeable credit cost booked in Q1 FY2023, because of lower-than-anticipated recoveries from the restructured book, which came out of the moratorium in April 2022. It reported a consolidated loss of Rs. 210 crore in Q1 FY2023 1 vis-à-vis a net profit of Rs. 21 crore in FY2022. This led to a decline in the consolidated net worth in Q1 FY2023 and hence, the managed gearing2 increased to 5.8 times(estimated) as on June 30, 2022 from 5.0 times as on March 31, 2022. ICRA, however, notes that SCNL has share warrants, which are yet to be converted in equity shares, from where it can raise a capital of Rs. 150 crore to support its capitalisation profile. The ratings also take into consideration SCNL's sizeable monitorable book, which includes a standard restructured book of Rs. 561 crore, security receipts (SRs)3 of Rs. 117 crore and gross non-performing assets (GNPAs) of Rs. 217 crore (4.4%) as on June 30, 2022, which cumulatively accounted for ~14% of its standalone AUM as on June 30, 2022. ICRA estimates that the incremental credit cost in FY2023 would be limited, given the healthy provisions already maintained by the company. Nevertheless, ICRA would continue to monitor the performance of its stressed book and any higher-than-anticipated credit costs may impact its credit profile.