Shriram Finance, Muthoot Finance soar up to 5% after S&P Ratings upgrades

Shares of three Non-banking finance companies (NBFCs) Shriram Finance, Muthoot Finance, and Sammaan Capital surged up to 5 per cent on Tuesday after global ratings agency S&P Ratings upgraded the long-term rating by one notch for all three firms.   

Among them, Sammaan Capital led the gains and settled higher by 4.75 per cent. This was followed by Shriram Finance settling with the gains of 3 per cent, and Muthoot Finance ending higher by 1.6 per cent.

 

S&P Ratings has raised the long-term issue ratings for Shriram Finance, and Muthoot Finance from "BB" to "BB+" and for Sammaan Capital from "B" to "B+".  

 

In a statement, S&P highlighted that the improvements in India's oversight of large non-banking finance companies (NBFCs), following changes to the regulatory framework, have resulted in better financial stability and sustainable growth for these firms.  

 

The Reserve Bank of India’s (RBI) differentiated regulatory approach is expected to significantly benefit the top-tier financial companies. These scale-based regulations have played a key role in strengthening the stability of the financial system, contributing to more sustainable growth among the largest NBFCs, with an increased emphasis on risk management, transparency, and compliance.  

 

Sharing its views on Muthoot Finance, the ratings agency said that, while some stress is expected in the asset quality of Muthoot's microfinance subsidiary, in line with the industry, the company is likely to maintain overall asset quality due to the dominance of its highly collateralised gold loan portfolio.  

 

"The stable rating outlook on Muthoot reflects our view that the company will maintain its capitalisation and strong market position in gold loans over the next 12 months. We expect Muthoot to continue increasing the share of longer-tenure funding in its funding mix," S&P noted.  

 

According to the statement, Shriram Finance is expected to maintain its market leadership in the used-commercial vehicle segment. The company benefits from its entrenched position in financing for this sector, supported by long-standing relationships with borrowers, a deep understanding of the market, and an expansive reach in lower-tier cities and rural areas.  

 

"Despite expectations of a high loan growth of 17-19 per cent for Shriram Finance over the next two years, its capitalisation is expected to remain strong. We project a risk-adjusted capital (RAC) ratio for the company to be between 13.5 per cent and 14.0 per cent over the next couple of years," the ratings agency said.  

 

Sammaan Capital will continue to wind down its legacy stressed assets in an orderly manner, with a manageable effect on its financial performance. The company’s strong capitalisation will enable it to manage any potential elevated credit losses arising from the winding down of its legacy mortgage book. It is expected to maintain sufficient liquidity over the next 12 months, S&P added.