The assigned rating reflects SFP’s still elevated risk profile arising from both business and financial fundamentals. The assigned rating considers the Company’s limited franchise presence (branch network consolidated to 15 branches), moderate operating scale, and ongoing efforts to reestablish operational stability following a period of regulatory restrictions and losses. Meanwhile, compromised financial ability of the ultimate parent due to its own financial challenges is also considered. SFP’s market position has continued to contract, with total assets representing only ~0.3% (FY25: ~0.5%) of the assets of LFC sector in 1QFY25. However, the rating draws comfort from recently appointed new management team’s revision of business model to focus on secured lending products, including gold loans and vehicle leasing, with an emphasis on improving recoveries and risk controls. Profitability remains constrained, with core income generation still dependent on a limited earning base and a material portion of income derived from non-recurring sources. The Company is projected to be operationally profitable by FY26.
The rating also incorporates restored capital position of the Company and compliance with minimum capital and Capital Adequacy Ratio (CAR) requirements. However, pressure on asset quality and liquidity persists. The improvement in capital adequacy to ~51.8% was largely supported by the transfer of loan portion, which reduced the Company’s risk-weighted assets rather than resulting from internal capital generation. The reduction in gross and net non-performing loans ('NPL') to ~47.3% (FY25: ~60.5%) and ~25.8% (FY25: ~31.4%) IN 1HFY26 primarily stemmed from portfolio adjustments under the loan book transfer rather than recoveries from the existing loan book. Liquidity coverage continues to remain below regulatory requirement (100%) at ~54.8% in FY25, highlighting the Company’s need to strengthen its funding position and maintain compliance with prudential norms.
The Developing Outlook reflects the potential for movement in rating, depending on the Company’s progress in executing its restructuring strategy. Improvement in profitability from core operation, asset quality and liquidity will lead to rating upgrade. Meanwhile, remaining compliant with regulatory requirements is critical. Any breach in this or deterioration in key indicators will result in rating downgrade.