Arka Fincap Bonds Explained: NCD Structure, Rating & Key Risks

What makes this page different

• It explains what the AA rating is made of: CRISIL says Arka's rating leans on strong support from its parent, Kirloskar Oil Engines (KOEL), and the page shows exactly which triggers would move it.

• It maps every NCD series: Arka has many ISINs with different coupons, maturities and complexity levels. One table stops readers mixing them up.

• It shows the profit trend honestly: The rating is strong, but return on assets has slipped and recent quarterly profit has been uneven.

Introduction

An AA-rated bond sounds safe, and AA sits in a high rating category. But a rating is an opinion, and Arka Fincap's AA leans heavily on one thing: the strength of its parent. This guide explains who Arka is, how its NCDs are structured, what the CRISIL rating really rests on, and which risks still deserve attention before you invest.

Arka Fincap: issuer overview

Arka Fincap Limited is a non-deposit-taking, systemically important NBFC promoted by the Kirloskar group. It began lending in April 2019 and was earlier named Kirloskar Capital Limited, renamed Arka Fincap in August 2019. Its loans fall into three broad buckets: SME and micro-SME lending, real estate and urban infrastructure finance, and corporate (wholesale) lending.

The loan book has grown fast. Assets under management (AUM) rose from ₹3,961 crore in March 2023 to ₹5,211 crore in March 2024 and ₹7,255 crore in March 2025, then to ₹7,679 crore by December 2025 and ₹7,651 crore by June 2026 (Kirloskar Oil Engines' Q1 FY27 presentation).The mix is also changing: SME and retail loans were about 29% of the book in FY23 and 63% by June 2025, and CRISIL expects them to reach roughly 80% over the medium term. SME loans carry a gross yield near 11.8% on a ticket of about ₹1 crore, while wholesale loans yield 13% to 13.5% on tickets of ₹30 crore to ₹50 crore.

Arka has also moved into pre-owned vehicle finance and small-ticket secured business loans (loan against property), and opened more than 35 branches in deeper geographies.

The Kirloskar parent behind Arka

Arka is a step-down subsidiary of Kirloskar Oil Engines Limited (KOEL), a listed Kirloskar group company that makes diesel engines, generator sets and pump sets. KOEL holds its financial services businesses through a holding company, Arka Financial Holdings Private Limited (AFHPL), and remains the 100% ultimate owner of Arka.

• Capital support: KOEL has put in around ₹1,000 crore, including ₹125 crore in FY21, ₹130 crore in FY22, ₹149 crore in FY23 and ₹57 crore in FY24.

• Governance links: Two of Arka's eight directors also sit on KOEL's board, and KOEL promoters are represented on key Arka committees such as credit, risk and asset-liability.

• Parent strength: KOEL is rated CRISIL AA+/Stable (as of CRISIL's October 2025 rationale).Its FY25 consolidated revenue was ₹5,569 crore with an EBITDA margin of 11.6%, and it targets $2 billion of consolidated revenue by fiscal 2030.

This support is the backbone of Arka's rating. It is an expectation based on strategic importance and moral obligation, not a legal guarantee on your NCD.

How Arka NCDs work

An NCD is a debt instrument: you lend money to the issuer, it pays a coupon, and it returns your principal at maturity. Non-convertible means it never turns into equity. Arka's NCDs come in two main forms:

• Public issue NCDs: In December 2023 Arka raised money through a public issue (₹150 crore base plus a ₹150 crore green-shoe option, ₹500 crore shelf, ₹1,000 face value, minimum 10 NCDs) in six series of 24, 36 and 60 months, with coupons from 9.00% to 10.00% per annum and quarterly or annual interest These were listed on BSE, with Catalyst Trusteeship as trustee and JM Financial and Nuvama as lead managers.

• Private placements: Larger-ticket issues sold to institutions and platforms, such as the 9.50% 2034 NCD, usually with a face value of ₹1 lakh.

Arka has also issued subordinated debt, which ranks below ordinary debt if the company is wound up, a ₹75 crore principal-protected market-linked debenture (scheduled to mature in February 2026). Always confirm which instrument you are buying.

Arka NCD series at a glance

CRISIL's October 2025 rationale lists these Arka debt instruments. Some have since matured, so investors should verify the current status of any ISIN before making an investment decision.

A useful pattern: the December 2023 ISINs match the six public-issue series by coupon and maturity, which means retail investors who bought in that issue hold these same bonds. CRISIL also rates ₹500 crore of NCDs yet to be issued.

Spotlight: the 9.50% 2034 NCD (INE03W107298)

The long maturity is the defining feature. years A ten-year bond pays a fixed 9.50% per annum for years (subject to the issuer meeting its obligations), which helps if rates fall but hurts the market price if rates rise. Remember that yield depends on the price you pay, so compare yield to maturity and not just the coupon.

Understanding the credit rating

CRISIL rates Arka's long-term debt AA/Stable and its commercial paper A1+. In its 6 October 2025 action it assigned AA/Stable to a new ₹500 crore NCD programme and reaffirmed ratings on existing NCDs, subordinated debt and bank facilities, raising the rated bank loans from ₹4,500 crore to ₹5,000 crore. Acuité separately rates Arka's ₹610 crore of NCDs AA/Stable (reaffirmed February 2026). CRISIL describes AA-rated instruments as having a high degree of safety regarding timely servicing of financial obligations, with very low credit risk. The rating has improved over time:

• What supports it: Strong expectation of support from KOEL, and capitalization CRISIL calls adequate for the current scale.

• What constrains it: A young operating history, a book that is still unseasoned, and the risk that the faster shift to SME lending tests asset quality.

The measures are not identical (CRISIL's trigger is gross NPA; the figure shown is the gross stage 3 ratio), but the gap to the downgrade line was large on these figures. Acute reported gross NPA of 1.35% for the nine months to December 2025 (0.42% a year earlier), still well below CRISIL's 5% trigger, and Kirloskar Oil Engines' Q1 FY27 presentation shows group debt to equity at 3.7 times on 30 June 2026 (4.2 times a year earlier). Watch gearing and profitability more closely.

Financial snapshot

Standalone figures from CRISIL, in ₹ crore unless stated:

Reading the numbers: Income and the book have grown quickly, but profit has not kept pace. Return on managed assets fell from 1.8% to 1.2% over two years, gross stage 3 rose from near zero to 0.87%, and gearing climbed above 4x. CRISIL attributes part of FY25 profit pressure to a provision on an alternative investment fund, FY26which CRISIL says was subsequently reversed.

Recent quarters: Quarterly profit has been uneven. Profit after tax was ₹10.3 crore in the June 2025 quarter (CRISIL). For the June 2026 quarter, Kirloskar Oil Engines' Q1 FY27 presentation shows profit after tax for the Arka group (Arka Financial Holdings, consolidated) at ₹6.9 crore against ₹10.1 crore a year earlier, on revenue of ₹210 crore (up 9%). Check the latest results on BSE for FY26 full-year numbers and asset quality.

Liquidity and funding

Borrowings were ₹5,348 crore on 30 June 2025. CRISIL describes liquidity as adequate: about ₹892 crore of cash, liquid investments, fixed deposits and unused bank lines on 31 August 2025, against about ₹896 crore of debt repayments (excluding interest) due in the following four months. That is a close match, so Arka relies on continued refinancing and on parental help if needed.

Funding is well diversified. CRISIL's annexure lists term loans from dozens of lenders, including State Bank of India, ICICI Bank, HDFC Bank, IDFC FIRST Bank, IndusInd Bank, Union Bank of India, Bandhan Bank, NABARD, SIDBI and MUDRA, alongside NCDs, subordinated debt and up to ₹1,000 crore of commercial paper.

Key risks investors should evaluate

Credit and default risk: Even AA-rated bonds can default or be downgraded. A rating is an opinion, not a guarantee.

Parent-dependence: The rating rests on expected support from KOEL, which is not a legal guarantee. A KOEL downgrade or change in support would hurt Arka's rating.

Unseasoned loan book: Rapid growth since FY23 means the book has not faced a full credit cycle.

Rising SME share: More small-ticket loans can mean higher yields but also higher credit costs, and gross stage 3 has already risen.

Weakening profitability: Return on managed assets fell from 1.8% to 0.5% (annualized, June 2025), leaving less cushion.

Leverage: Gearing was 4.2x to 4.4x in CRISIL's 2025 figures against an expected ceiling of 4.75x, and the group-level debt to equity ratio was 3.7x on 30 June 2026 (Kirloskar Oil Engines' Q1 FY27 presentation).

Refinancing and liquidity: Near-term repayments roughly equal available liquidity, so access to bank and market funding matters.

Long-tenure and rate risk: A ten-year NCD can lose market value when yields rise, and there is a long time for conditions to change.

Subordination and complexity: Subordinated debt ranks below ordinary creditors, and complex or market-linked instruments carry extra features. Read the terms.

Secondary-market liquidity: Private placements with high face values can be hard to sell before maturity.

What the coupon is paying for

A coupon of 9% to 10% per annum from an AA-rated NBFC is above what many banks pay on fixed deposits (HDFC Bank, 2026); the difference reflects credit, tenure and liquidity risk. Bank FDs carry deposit insurance up to ₹5 lakh per depositor per bank (DICGC) ; NCDs do not. Treat the rating as one input, and keep any single issuer to a measured share of your fixed-income holdings. Coupon income is taxed at your slab rate; check current rules on TDS and capital gains.

Who may consider it: Investors comfortable with AA-category NBFC credit who can hold to maturity and want some yield above FDs.

Who may not: anyone who needs capital protection, easy liquidity or money for near-term goals.

How to buy: You need a demat account with NSDL or CDSL. Listed NCDs are available through SEBI-registered bond platforms and brokers. Compare price, yield to maturity and charges before ordering.

Quick investor summary

• An AA rating here leans on Kirloskar parental support.

• Check the exact ISIN, instrument type and tenure.

• Watch gearing, asset quality and profitability each quarter.

Published By:

BondScanner, a SEBI-registered Online Bond Platform Provider (OBPP). Links to BondScanner's platform and app listings are for educational and informational discovery purposes only.

Disclaimer:

This blog is intended solely for educational and informational purposes. The instruments, issuer categories, yield ranges, and examples mentioned herein are illustrative and should not be construed as investment advice or recommendations. BondScanner is a SEBI-registered OBPP and does not provide personalised investment advice. Nothing in this article is a solicitation to buy or sell any security. Fixed and coupon returns described in this article do not constitute guaranteed or assured returns. Investments in debt securities are subject to market, credit, and default risks, including delay and/or default in payment. Investors must read all offer-related documents carefully before investing.

Sustvest Broking Pvt. Ltd. | SEBI Reg. No. INZ000320834