KOCHI: KLM Axiva Finvest is facing a funding challenge after a sharp deterioration in its capitalisation and asset quality prompted two rating agencies to downgrade the company.
CARE Ratings has cut its rating on the company's NCDs from BBB- to BB+, taking them below investment grade, while Acuité has downgraded its rating from BBB to BBB- and revised the outlook to Negative.
The pressure comes as KLM's gearing jumped to 7.48 times as of March 2026 from 5.74 times a year earlier. Its net worth fell to Rs209.28 crore from Rs267.78 crore, while total debt stood at Rs1,564.62 crore. Acuité said the company would require further debt to support growth, but its already leveraged capital structure means promoters may have to infuse additional equity.
It said substantial equity infusion is required to strengthen the capital position and improve gearing.
The company's funding profile adds to the challenge. As of March 31, 2026, NCDs and subordinated debt accounted for 93 per cent of its Rs1,595.93 crore borrowings, with bank facilities contributing only 7 per cent. Acuité similarly noted that public and privately placed NCDs and subordinated debt constituted the major part of borrowings, while bank funding remained modest.
Rs77.42cr write-offs
The deterioration in capitalisation was driven partly by a substantial clean-up of the loan book. KLM incurred Rs77.42 crore in write-offs and impairment reserves in FY26. This included Rs6.42 crore of gold-loan write-offs, about Rs14 crore of MSME loan write-offs and Rs57.51 crore of impairment on its unsecured MFI portfolio.
The clean-up coincided with a sharp weakening in profitability. PAT fell to Rs8.86 crore in FY26 from Rs20.19 crore in FY25, while return on average assets declined to 0.48 per cent from 1.07 per cent. CARE has identified ROTA below 0.50 per cent on a sustained basis as a potential trigger for a negative rating action.
Asset quality also deteriorated. Gross NPA rose to 3.17 per cent from 1.99 per cent and net NPA to 2.18 per cent from 0.93 per cent.
CARE's downgrade also reflects operational-control and governance concerns identified in the company's FY26 accounts and RBI's supervisory inspection.
The statutory auditor reported limitations in verifying certain MFI and MSME receivables, instances of loans being renewed or transferred to loan-against-security products without corresponding cash flows, and concerns over the continuity of the accounting software's audit trail. RBI's inspection findings primarily related to NPA classification and provisioning, with further adjustments potentially dependent on the special receivables and external audits.
100 branches closed
The two agencies have also flagged governance as a monitorable, following the resignation of two independent directors during FY26.
KLM has nevertheless been shifting towards its core gold-loan business. Gold loans accounted for about 76-77 per cent of AUM in FY26, while the company closed around 100 branches that were not profitable. Acuité said AUM edged up to Rs1,636 crore despite the branch closures.
The immediate liquidity position does not appear stressed. Acuité reported Rs19.49 crore of cash and cash equivalents at March-end against Rs582.83 crore of debt repayments due over one year, while projected loan collections were Rs1,309 crore. Both agencies assessed liquidity as adequate.
The bigger challenge, therefore, is not immediate liquidity but the ability to keep funding growth without further stretching an already leveraged balance sheet. Both agencies identify gearing of around 5 times or lower as a level consistent with a stronger credit profile, making fresh equity a key requirement if KLM is to continue expanding through additional borrowing.
