Description

Revision of financial covenants for Five-Star Business Finance Limited debt securities, relaxing gross loans with DPD greater than 90 days limits.

Summary

BSE has issued an update regarding debt securities of Five-Star Business Finance Limited, announcing revisions to financial covenants specified in Schedule IX. The changes relax limits on gross loans with days past due (DPD) greater than 90 days as a percentage of Assets Under Management (AUM), increasing thresholds significantly.

Key Points

  • Financial covenant Sr.4 of Schedule IX has been revised
  • Gross Loans with DPD >90 days as % of AUM limit increased from <2.50% to <3.25%
  • Net Gross Loans with DPD >90 days (less ECL) as % of AUM limit increased from <1.50% to <2.25%
  • Indicates relaxation of asset quality requirements for the debt securities

Regulatory Changes

Existing Terms (Schedule IX Sr.4)

  • Gross Loans with DPD greater than 90 days as a percentage of AUM: <2.50%
  • Gross Loans with DPD greater than 90 days less ECL on Gross Loans with DPD greater than 90 days as a percentage of AUM: <1.50%

Revised Terms (Schedule IX Sr.4)

  • Gross Loans with DPD greater than 90 days as a percentage of AUM: <3.25% (increased by 0.75%)
  • Gross Loans with DPD greater than 90 days less ECL on Gross Loans with DPD greater than 90 days as a percentage of AUM: <2.25% (increased by 0.75%)

Compliance Requirements

  • Debenture holders and investors should note the revised financial covenant thresholds
  • Five-Star Business Finance Limited must comply with the revised covenant limits
  • Market participants should monitor compliance with the new thresholds

Important Dates

  • Circular Date: January 19, 2026
  • Effective date of revised terms not specified in the circular

Impact Assessment

Credit Quality Implications: The 30% increase in permissible DPD >90 days ratios (from 2.50% to 3.25% gross, and 1.50% to 2.25% net) suggests potential asset quality stress. This covenant relaxation may indicate that Five-Star Business Finance Limited was approaching or at risk of breaching the original thresholds.

Investor Considerations: Debenture holders face increased credit risk as the company now has more headroom for non-performing assets. The revision may reflect deteriorating portfolio quality in the microfinance/NBFC lending sector.

Market Impact: Limited broader market impact as this applies specifically to Five-Star Business Finance Limited’s debt securities, though it may signal sector-wide asset quality pressures in the NBFC space.

Impact Justification

Material change to financial covenants indicating potential asset quality concerns, but limited to specific debt securities of one issuer