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Global rating agency S&P Ratings has upgraded long-term rating by one notch for three Indian non-banking financial companies (NBFCs) - Shriram Finance, Muthoot Finance and Sammaan Capital – on the back of improving the regulatory environment for NBFCs in the country.
Muthoot Finance Ltd and Shriram Finance Ltd’s long-term issue rating upgraded from “BB” to “BB+” and for Sammaan Capital, the rating upgraded from “B” to “B+”.
At the same time, it revised the long-term rating outlook on Bajaj Finance Ltd from “stable” to “positive” and also affirmed ratings on Tata Capital Ltd. and Piramal Capital & Housing Finance Ltd.
“We believe India's oversight of large non-banking finance companies (NBFCs) has improved sustainably after changes to the regulatory framework. This has, in turn, led to more financial stability and sustainable growth of these companies,” S&P said in a statement.
Reserve Bank of India's (RBI) differentiated regulatory regime will benefit upper-layer fincos the most. The scale-based regulations have progressively strengthened the financial system's stability. This has led to more sustainable growth at the largest NBFCs, along with a focus on risk management, transparency, and compliance.
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“We have accordingly revised the anchor - the starting point for rating upper-layer fincos in India - to 'bb+' from 'bb'. The anchor for other finance companies remain unchanged at 'bb',” it said.
RBI introduced scale-based regulations in October 2022 to progressively increase the intensity of regulation and supervision. Upper-layer NBFCs are subject to more stringent guidelines and supervision than what smaller players face. The tougher rules include capital adequacy norms, mandatory listing and consequent disclosure requirements, and more stringent provisioning needs.
These changes in regulatory framework are coming when the Indian economy is on a high-growth trajectory.
“We estimate GDP growth at 6-7 per cent for 2025-2026. We believe large NBFCs play a critical role in financial intermediation, complementing banks, particularly in financing the retail sector and small and midsize companies,” S&P said.
The upper-layer NBFCs have become sizable, with total assets and loans rivalling those of midsize Indian banks. Generally, upper-layer fincos are well-capitalised, which will support credit growth over the next two years and provide buffers against downside risks, it added.
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