India's economic recovery to help improve credit quality of fincos: S&P

However, the improvement will not be uniform; stronger firms will likely gain market share, weaker ones may resort to originate-and-distribute business models to tide over liquidity stress

The credit quality of Indian finance companies (fincos) will continue to improve owing to the country's strong macroeconomic trends, according to S&P Global Ratings.

S&P Global credit analyst Deepali Seth Chhabria said the improvement in credit profiles of fincos will be far from uniform.

Stronger companies will likely gain market share, given their better funding access. Meanwhile, weaker players could resort to originate-and-distribute business models to tide over the liquidity stress.

Standard and Poor’s (S&P), which published a chartbook "Indian Finance Company Outlook 2023" on Monday, said “Higher inflation or interest rates than we expect remain key risks to our forecasts. Rising interest rates are likely to push up borrowing cost for Indian fincos.”

Companies with strong governance and parentage are likely to fare better than others. Emerging co-lending models are easing the liquidity stress. Bank borrowings is expected to dominate incremental funding in 2023.

The outlooks on most rated fincos are stable, reflecting their strong earnings, capitalisation, and improving asset quality.