CRISIL puts long-term ratings of Navi Finserv, Asirvad on rating watch

Earlier this month, the RBI barred four NBFCs, including two MFIs, from sanctioning and disbursing loans due to charging exorbitant interest rates to borrowers

Following the Reserve Bank of India’s (RBI) action against Navi Finserv and Asirvad Microfinance, domestic rating agency CRISIL has placed Asirvad’s long-term ratings on "rating watch with developing implications" and Navi’s ratings on "watch negative."

 

Earlier this month, the RBI barred four non-banking finance companies (NBFCs), including two microfinance institutions (MFIs), from sanctioning and disbursing loans due to charging exorbitant interest rates to borrowers. These four entities were: Asirvad Microfinance, Arohan Financial Services (also an MFI), DMI Finance, and Flipkart co-founder Sachin Bansal’s Navi Finserv, which offers home and personal loans.

 

The RBI’s action was based on material supervisory concerns observed in these companies' pricing policies, specifically their weighted average lending rate (WALR) and the interest spread charged over their cost of funds, which were found to be excessive and not in adherence with regulations.

 

Navi Finserv is in continuous engagement with the RBI, and the business restrictions imposed will be reviewed upon receipt of confirmation from Navi Finserv regarding suitable remedial actions taken to comply with regulatory guidelines at all times, particularly regarding pricing policy, risk management processes, customer service, and grievance redressal aspects, CRISIL said. It added that it will closely monitor developments related to the restrictions and the time taken for their revocation.

 

According to CRISIL, the 'ratings watch' will be resolved post lifting of all restrictions imposed by the RBI on Navi Finserv and the resumption of business operations. Additionally, CRISIL noted that Navi Finserv has unencumbered liquidity of Rs 1,450 crore, mainly in cash and cash equivalents, which is sufficient to meet debt obligations for up to two months.

 

“The company’s scheduled average monthly collections stand at around Rs 950 crore over the next five months. The ability of Navi Finserv to maintain its collection efficiency over the near term will be critical to maintaining comfortable liquidity and will continue to be monitored,” CRISIL said.

 

Earlier this week, Navi Finserv cancelled its planned bond issuance of Rs 100 crore.

 

Separately, CRISIL said the restrictions on disbursements would lead to a reduction in the overall assets under management (AUM) of Asirvad Finance. Consequently, profitability is also expected to decline from current levels. However, Asirvad Finance has on-balance sheet liquidity of Rs 1,407 crore, and its ability to maintain collection efficiency over the near term will be crucial to maintaining its liquidity, the rating agency noted.

 

Additionally, the rating agency stated that Manappuram Finance is likely to provide support to Asirvad Finance if the need arises. Asirvad Finance is a subsidiary of Manappuram Finance.