Shriram Finance stock faces pressure as credit costs rise

Shriram Finance posted strong growth in the July-September quarter, but rising credit costs and a more cautious asset-quality outlook have shifted investor attention toward downside risks. A Business Standard analysis published on Monday, October 26, said the lender may miss its earlier credit-cost and asset-quality guidance.

Strong growth meets rising credit risk

Profit after tax increased about 60 percent year on year to INR 3,680 crore in the second quarter of fiscal 2027. Net interest income rose 40 percent to INR 8,410 crore, while pre-provision operating profit increased 53 percent to INR 6,810 crore.

Net interest margin improved by 50 basis points quarter on quarter to 9.52 percent. The cost-to-income ratio fell by 290 basis points to 22.9 percent, supporting operating efficiency despite the pressure on credit quality.

Guidance turns more cautious

Credit costs reached INR 1,880 crore in the quarter, equivalent to an annualised rate of 2.35 percent, compared with 1.9 percent in the previous quarter and in fiscal 2026. Management expects credit costs to remain elevated through the second half of fiscal 2027.

The company reduced its fiscal 2027 asset-management growth guidance to 15 to 17 percent from 18 percent previously. Management also warned that seasonal stress could lift credit costs by 30 to 40 basis points over the next one or two quarters in drought-affected parts of Maharashtra, Karnataka and Telangana.

Assets under management rose 17 percent year on year and 4.9 percent quarter on quarter to INR 3.29 trillion. Disbursements increased 25 percent year on year to INR 54,100 crore, led by commercial vehicles, passenger vehicles, gold loans and personal loans.

What investors should watch next

Gross Stage 3 assets stood at 4.65 percent and net Stage 3 assets at about 2.3 percent. Stage 2 assets also edged higher, with stress visible in two-wheelers, commercial vehicles, micro, small and medium enterprises, tractors and gold loans.

Management expects net interest margin to remain broadly stable over the next two quarters before moderating toward 9 percent in fiscal 2028 and 8.5 percent over the longer term. For investors, the next quarterly update should show whether higher margins can offset credit-cost pressure and whether rural stress remains concentrated or broadens across the lending portfolio.