Recovery underway in financial sector, upgrades of 4 institutions: S&P

S&P Global Ratings on Tuesday said a strong recovery is underway in the Indian financial sector and upgraded four financial institutions, including Union Bank of India and Bajaj Finance.

The move reflects S&P's view that domestic financial institutions in India will continue to improve their asset quality, benefiting from good economic prospects and structural improvements in the operating conditions.

"S&P Global Ratings today upgraded Bajaj Finance, Hero FinCorp, Shriram Finance, and Union Bank of India... A strong recovery is underway in the Indian financial sector," S&P said.

S&P expects India's financial institutions, especially the public sector banks, to sustain their improvement in capital positions.

Bank earnings will also likely be comparable to other emerging market peers, although margins could decline as the banks reprice deposits. "We expect earnings for our rated non-bank finance companies to remain healthy despite pressure from the rising cost of funds," S&P said.

The US-based rating agency said the banking industry's weak loans ratio will continue to improve. The ratio, which was about 5.2 per cent of gross loans as of March 31, 2023, is expected to decline to 3-3.5 per cent by March 31, 2025, it said.

The agency affirmed its ratings on the other rated financial institutions and also raised the issue rating on debt of some of these institutions.