Rationale

 The ratings consider Sundaram Finance Limited's (SFL) demonstrated track record of stable and profitable growth across business cycles, its experienced senior management team and established franchise. The ratings also factor in the company's comfortable funding and strong liquidity profile, given its ability to raise funds from diverse sources at competitive rates. SFL's gross stage 3 (GS 3) stood at 2.5%1 in December 2020 (2.8% in December 2019) and it had undertaken restructuring of 2.5% of the portfolio in Q3 FY2021 on account of the Covid-19-induced business disruptions faced by the borrowers. The Covid-19- induced restructured book inched up further in Q4 FY2021 to about 4% in February 2021 and is expected to stabilise around this level. ICRA notes SFL's track record of keeping its asset quality under control across business cycles; however, the performance of the restructured book, considering the subdued operating environment post the pandemic, would be a monitorable from a rating perspective. ICRA notes that the company has augmented its provisions since Q4 FY2020, resulting in provision/assets under management (AUM) of 1.4% as of December 2020 and 1.2% as of March 2020 vis-à-vis 0.6% in March 2019, which provides some cushion for the incremental expected stress. SFL's capitalisation profile is adequate considering the subdued portfolio growth outlook, in view of the pandemic. At the consolidated level, the SFL Group has a presence in the vehicle and mortgage (housing and non-housing) finance segments and offers various financial products including insurance and asset management services. The Group's growth has been driven with an eye on maintaining good asset quality while generating stable business returns. The Group's ability to maintain a good return, while keeping the asset quality under control, would be crucial from a rating perspective. ICRA has also reaffirmed and withdrawn the long-term rating on the Rs. 1,200.00-crore NCD programme and Rs. 75.10-crore subordinated debt programme in accordance with ICRA's policy on the withdrawal of credit ratings as the instruments have matured and have been fully repaid.