India Ratings downgrades Spandana Sphoorty's debentures, loans to BBB+

Profitability under pressure due to high credit costs

India Ratings has downgraded ratings for microfinance institution (MFI) Spandana Sphoorty Financial Ltd's debentures and loans from “A-” to “BBB+” due to pressure on profitability largely on account of elevated credit costs and operating expenses.

 

While its capital profile was healthy with Capital Adequacy Ratio (CAR) of 46 per cent in August 2025, its asset quality was weak, with gross non-performing assets (NPAs) standing at 5.49 per cent and net NPAs at 1.21 per cent as of June 2025.

 

“Spandana is one of the companies that has been the most impacted by the microfinance crisis, and the agency expects the company’s operating and financial performance to remain under pressure in the near term,” India Ratings said in a statement.

   

The firm, a non-banking financial company (NBFC) working as MFI, saw uptick in portfolio delinquencies in 2024-25 (FY25) due to increasing levels of borrower indebtedness, high field staff attrition, and operational challenges. The operational issues arose from transition to weekly collections mode from a monthly one in select geographies. But, it has paused the transition at present due to headwinds in the sector.

 

The internal challenges were further exacerbated by external factors such as the impact of general elections in the first quarter of FY25, political movements, namely Karza Mukti Abhiyan, in certain geographies, and adverse weather conditions.

 

Referring to return to normalcy, India Ratings said business stabilisation was still underway. It is likely to take more time to regain franchise in the business.

 

Adopting a cautious approach, Spandana pulled back on its disbursements between January and May 2025, leading to a significant loss of a part of its franchise. It expects a slow recovery in regaining the franchise in FY26, even though capitalisation levels are healthy. The growth will be driven by servicing of the existing borrower base along with acquisition of new borrowers, the rating agency added.

 

Spandana’s consolidated assets under management (AUM) expanded at a cumulative annual growth rate of 34.9 per cent over FY22-FY24 and 40.7 per cent year-on-year (Y-o-Y) to ~11,973 crore at end of March 2024. However, the portfolio shrank by 43 per cent Y-o-Y to ~6,819 crore during FY25. The AUM further moderated to ~4,958 crore during the first quarter of FY26.