Star Housing Finance Limited has received a significant credit rating downgrade from CARE Ratings Limited, with its long-term bank loan facilities being downgraded from CARE BBB- to CARE D on February 20, 2026. The downgrade affects facilities worth INR 300 crore and reflects the company's recent default on debt obligations.

Rating Downgrade Details

The rating action was prompted by Star Housing Finance's delays in term loan instalments to six lenders, with payment delays ranging from 1 to 11 days in February 2026. According to CARE Ratings, this default stemmed from severe liquidity stress within the company.

Liquidity Crisis and Underlying Causes

The company's liquidity stress was primarily triggered by an investor's accelerated redemption of non-convertible debentures (NCDs). The NCDs were recalled in December 2025 following the resignation of the company's Chief Financial Officer, with the position remaining vacant. Despite no breach of covenants on the NCDs, the investor proceeded with the recall, forcing the company to agree to prepayment.

Star Housing Finance's liquidity position deteriorated sharply from a reasonable buffer of ₹20.00 crore in unencumbered cash and equivalents as of December 30, 2025, to just ₹2.91 crore as of February 19, 2026. This dramatic decline occurred against scheduled debt obligations of ₹17.60 crore due in March 2026.

Company Response and Current Status

Star Housing Finance's management has confirmed that all overdue amounts have been cleared, and the company claims to have made advance payments of debt instalments due in February 2026. However, CARE Ratings noted that the company misrepresented facts by failing to disclose the NCD recall during surveillance in January 2026 and not reporting it to stock exchanges.

The 9MFY26 financials highlighted the company's liquidity stress, with the auditor noting delays in salary payments to employees and drawing attention to the strained cash flow position. The auditor indicated that the company may need continued reliance on external funding, though the limited review report was not qualified.

Financial Performance Overview

Star Housing Finance operates as a small-sized housing finance company focusing on the affordable housing segment, serving low-and-middle-income borrowers across six states through over 38 branches. The company's assets under management stood at ₹570.00 crore as of December 31, 2025.

Rating Outlook and Future Implications

CARE Ratings has indicated that positive rating action could be considered if the company demonstrates timely servicing of debt obligations for a minimum of three continuous months. However, the current rating downgrade to "default" status is expected to trigger breach of lending covenants, further straining the company's already fragile cash position.

The rating agency has classified the company's liquidity as "Poor," reflecting the significant impairment to both financial and business risk profiles due to the sharp decline in liquidity buffers following the NCD recall.

Source: None/Company/INE526R01028/ecfed5e1-c644-4b3e-8707-175c91035c8a.pdf

Star Housing Finance Limited announced its unaudited financial results for the third quarter of fiscal year 2026, ending December 31, 2025, revealing a sharp decline in profitability despite revenue growth. The housing finance company's performance was significantly impacted by rising operational costs and various operational challenges.

Financial Performance Overview

The company's financial metrics for Q3FY26 showed mixed results with revenue growth offset by margin compression:

Revenue Components and Growth Drivers

Interest income, the company's primary revenue source, demonstrated healthy growth of 14.20% year-over-year, reaching ₹2,565.42 lakhs compared to ₹2,247.42 lakhs in Q3FY25. However, fees and commission income declined significantly by 72.40% to ₹20.76 lakhs from ₹75.28 lakhs in the previous year. The company also reported a loss on de-recognition of financial assets of ₹29.54 lakhs, contrasting with a gain of ₹8.10 lakhs in the corresponding quarter last year.

Expense Analysis and Cost Pressures

The substantial increase in total expenses was driven by multiple factors. Finance costs rose 12.20% to ₹1,361.58 lakhs, while employee benefit expenses increased 6.30% to ₹554.40 lakhs. Other expenses showed the most dramatic increase, surging 96.60% to ₹447.83 lakhs from ₹227.76 lakhs in Q3FY25. Impairment of financial instruments decreased to ₹99.66 lakhs from ₹115.49 lakhs in the previous year.

Nine-Month Performance Comparison

For the nine months ended December 31, 2025, the company's performance showed similar trends:

Business Overview and Portfolio Composition

The company released its investor presentation highlighting key business metrics. Star Housing Finance maintains an Assets Under Management (AUM) of ₹569.86 crores with over 5,500 live accounts and an average loan size of ₹10 lakhs. The company focuses on the affordable housing finance segment, serving primarily EWS/LIG customers across 6 states with 35+ points of presence.

Board Meeting Outcomes and Committee Restructuring

The Board of Directors meeting held on February 11, 2026, approved the Q3FY26 financial results and announced significant changes to board committees. The Stakeholder Relationship Committee saw a leadership change with Mr. Amlendra Prasad Saxena replacing Mrs. Neelam Tater as Chairman, while Mr. Ajith Kumar Lakshmanan was added as a new member. The Corporate Social Responsibility Committee also underwent restructuring, with Mr. Ajith Kumar Lakshmanan replacing Mrs. Neelam Tater as a member. The IT Strategy Committee saw Mr. Kalpesh Dave replace Mr. Chinnathambi Ilango as a member.

Auditor Concerns and Risk Factors

The independent auditor's limited review report highlighted several areas of concern that investors should note. Cash flow position indicates liquidity pressures requiring continued reliance on external funding. Delays in employee salary payments potentially expose the company to statutory non-compliances. The Chief Financial Officer position has been vacant since June 2025, with the statutory six-month period expiring in December 2025. Expected credit loss increased by ₹1.06 crore compared to the preceding quarter. Certain director resignations occurred without replacements being appointed.

Key Financial Ratios and Metrics

As of December 31, 2025, the company maintained key financial metrics as follows:

Source: Star Housing Finance Limited regulatory filing