Rationale
The ratings consider
Sundaram Finance Limited's (SFL) demonstrated track record of steady 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)
increased to 3.4% in December 2021 (2.5% in December 2020) and it had an
outstanding restructured book accounting for 6.4% (standard restructured is
5.5%) of the assets under management (AUM) as of December 2021. ICRA notes
SFL's track record of keeping its asset quality under control across business
cycles; however, the performance, considering the prolonged stress faced by its
borrowers, especially in the commercial vehicle (CV) segment, and the sizeable
restructured book, would be a near-term monitorable from a rating perspective.
ICRA notes that the collections, were picked up from July 2021 vis-à-vis Q1
FY2022, however, the average collections % for Q4 FY2022 are 4% lower than that
of Q4 FY2021 (pre-second wave). The company has augmented its provisions since
Q4 FY2020, resulting in provision/AUM of 2.3% as of December 2021 (1.7% as of
March 2021) vis a vis 1.2% as of March 2020 (0.6% as of March 2019). SFL's
capitalisation profile is comfortable with tier-I at 16.6% as December 2021. 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. In compliance with the circular
[SEBI/HO/MIRSD/MIRSD_CRADT/P/CIR/2021/594] issued by the Securities and
Exchange Board of India (SEBI) on July 16, 2021 and the subsequent circular
SEBI/HO/MIRSD/MIRSD_CRADT /P/CIR/2022/43 of April 1, 2022, for standardising
the rating scales used by the Credit Rating Agencies, ICRA has discontinued the
medium-term rating scale which was being used to assign ratings to the fixed
deposit programmes of entities.
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