Rationale

 The rating action factors in UC Inclusive Credit Pvt Ltd’s (UCIC) strengthened capitalisation profile as well as the steady improvement in its earnings profile over the past two years. The company has scaled up its loan portfolio1 steadily, reaching Rs. 782.8 crore as of March 2024 (Rs. 510.2 crore as of March 2023), and raised about Rs. 73 crore of capital in November 2023 from existing and new investors. This would support the envisaged growth in the near term. Following the capital infusion, UCIC’s managed gearing improved to 3.1x as of March 2024 from 4.2x as of March 2023 while the capital-to-risk weighted assets ratio (CRAR) increased to 25.6% as of March 2024 from 22.47% as of March 2023. The company’s earnings has improved steadily, with its net profitability2 at 2.7% in FY2024 and 1.8% in FY2023, supported by better operational efficiency and controlled credit costs as it steadily scaled up its operations. UCIC had nil gross non-performing assets (GNPAs) and net NPAs (NNPAs) as of March 2024. However, it faced some softer bucket delinquencies with the 0+ days past due (dpd) and 30+ dpd at 3.2% and 1.1%, respectively, as of March 2024. The ratings remain constrained by UCIC’s moderate scale and the concentrated exposure to entities with modest risk profiles, though the same has been on a reducing trend over the years. The top 20 entities accounted for 20.8% of the loan portfolio as on March 31, 2024. The share of the financial services sector in the assets under management (AUM) has been declining over the years, though it still accounts for a major portion at 59.5% of the portfolio as of March 2024. The Stable outlook on the rating reflects ICRA’s expectation that UCIC will maintain an adequate earnings and capital profile over the near-to-medium term as it scales up its loan portfolio.