The company reported a profit of 18.18 billion rupees ($218.8 million) in the quarter ended Dec. 31, missing analysts' estimate of 18.63 billion rupees, according to LSEG data.

The cost of funds for Indian lenders has remained elevated in recent months due to a high-interest environment and intensifying competition for deposits. India's central bank has kept the lending rate steady at 6.50% for five straight policy meetings, following a cumulative 250-basis-point raise.

The company's finance costs rose nearly 19% to 37.07 billion rupees, leading to a 24.1% rise in total expenses.

Shriram Finance's Gross Stage 3 Asset - loans overdue for more than 90 days - rose 8.08% year-on-year to 119.52 billion rupees. Loan losses and provisions grew 36.25% year-on-year. However, interest income grew nearly 18% to 86.18 billion rupees on robust loan demand.

India's commercial vehicles (CV) and passenger vehicles (PV) segments, which together form two-thirds of Shriram Finance's total assets under management (AUM), have seen a rise in sales in recent months owing to festive demand.

Net interest income, the difference between interest earned and paid, jumped 15.04%. The net interest margin, a key metric of profitability, improved to 8.99% from 8.52% a year earlier.

Shriram Finance's AUM rose to 2.14 trillion rupees as of end-December from 2.03 trillion as of end-September.

Shares of the company closed 0.2% higher on Thursday. ($1 = 83.0820 Indian rupees)

(Reporting by Nishit Navin and Ashish Chandra in Bengaluru; Editing by Janane Venkatraman)