CRISIL said that the ratings reflect the company's majority ownership by, and strategic importance to, the parent, Mahindra & Mahindra (M&M).

The ratings are also underpinned by a strong position in the utility vehicle (UV) and tractor financing business in rural and semi-urban areas, adequate capitalisation, and a stable resource profile. These strengths are partially offset by modest asset quality.

Mahindra Finance's asset quality deteriorated in Q1 FY22 on account of the outbreak of the second wave of the pandemic, however, it improved subsequently with pickup in economic activities. Gross stage 3 assets showed improvement and stood at 7.66% as on 31 March 2022 as compared to 8.96% as on 31 March 2021.

Under the RBI August 2020 and May 2021 Resolution Framework for COVID-19-related stress, the company has implemented restructuring on accounts amounting to Rs 4,019 crore (6.2% of the portfolio) as on 31 March 2022; performance of this portfolio remains to be seen.

Mahindra Finance's ability to manage collections and asset quality in the current environment will remain a key monitorable.

The impact of the revised norms of the RBI on asset classification as part of the circular released on 12 November 2021 and further extended upto 30 September 2022 as per RBI circular dated 15 February 2022 remains to be seen.

Mahindra & Mahindra Financial Services (Mahindra Finance) is a non-banking financial company (NBFC). M&M, the majority shareholder, held 52.2% in Mahindra Finance as on 31 March 2022. Mahindra Finance ranks among the larger NBFCs in India with gross loan assets of Rs 64,961 crore as on 31 March 2022. The company finances consumer purchases of UVs, LCVs, tractors, cars, and other assets.

The company's net profit surged to Rs 601 crore in Q4 FY22 from Rs 150 crore in Q4 FY21. Total income declined 6.5% to Rs 2,466.36 crore in Q4 FY22 from Rs 2,637.51 crore in Q4 FY21.

The scrip shed 0.20% to end at Rs 171.15 on the BSE yesterday.