Description

Revision of financial covenants for Five-Star Business Finance Limited's debt securities, increasing permissible DPD thresholds for loans greater than 90 days past due.

Summary

BSE has issued an update regarding the debt securities of Five-Star Business Finance Limited. The circular announces revisions to the financial covenants specified in Schedule IX, Sr.4, which govern the permissible levels of loans with days past due (DPD) greater than 90 days as a percentage of Assets Under Management (AUM).

Key Points

  • Gross Loans with DPD >90 days as % of AUM threshold increased from <2.50% to <3.25%
  • Net Loans with DPD >90 days (after ECL adjustment) as % of AUM threshold increased from <1.50% to <2.25%
  • Revisions apply to Sr.4 of Schedule IX Financial Covenant terms
  • The covenant relaxation provides additional headroom for managing non-performing assets

Regulatory Changes

Existing Terms (Sr.4 of Schedule IX):

  • 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 (Sr.4 of Schedule IX):

  • Gross Loans with DPD greater than 90 days as a percentage of AUM < 3.25%
  • 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%

Compliance Requirements

  • Five-Star Business Finance Limited must maintain Gross Loans with DPD >90 days below 3.25% of AUM
  • The company must ensure Net Loans with DPD >90 days (after Expected Credit Loss provisions) remain below 2.25% of AUM
  • Debenture holders and investors should monitor compliance with revised covenant thresholds
  • The company must report covenant compliance as per existing disclosure requirements

Important Dates

  • Circular Date: January 19, 2026
  • Effective Date: Not explicitly specified in the circular content provided

Impact Assessment

Credit Quality Implications: The upward revision of covenant thresholds by 75 basis points (gross) and 75 basis points (net) suggests either anticipation of increased delinquencies or a need for greater operational flexibility. This may signal asset quality pressures in the microfinance/NBFC sector.

Investor Impact: Debt investors should reassess credit risk profiles and monitor the company’s actual DPD levels relative to the new thresholds. The covenant relaxation reduces the margin of safety but may prevent technical defaults.

Market Perception: The revision may be viewed neutrally if proactive or negatively if reactive to deteriorating portfolio quality. Transparency in the company’s rationale would be important for market confidence.

Operational Flexibility: Provides Five-Star Business Finance Limited with additional room to manage its loan portfolio during periods of stress without breaching covenants.

Impact Justification

Covenant relaxation indicates potential credit quality concerns but provides operational flexibility to the issuer. Relevant for debt investors monitoring credit metrics.