S&P upgrades ratings of 10 Indian financial institutions
What's the story
S&P Global Ratings has upgraded the long-term issuer credit ratings of 10 Indian financial institutions, including seven banks and three finance companies. The move comes after the agency raised India's sovereign rating to 'BBB/Stable/A-2' from 'BBB-/Positive/A-3,' marking the first upgrade in 18 years. The agency cited factors like strong growth momentum, effective inflation management, and structural reforms such as the Insolvency and Bankruptcy Code (IBC) for this decision.
Credit culture
IBC has improved recovery and credit culture in India
The S&P Global Ratings report highlighted the IBC's contribution to improving recovery and credit culture in India. The code, introduced in 2016, has improved the payment culture and rule of law in India. It has also promoted a credit culture that encourages restructuring of going-concern entities. The agency noted that under the previous bankruptcy regime, recovery values were between 15-20%. But with IBC, they have improved to over 30%.
Growth projection
S&P expects Indian banks to maintain adequate asset quality
S&P Global Ratings expects India's strong economic fundamentals to support growth momentum in the next two to three years. The agency also believes that monetary policy settings have become more conducive to managing inflationary expectations. Despite some pockets of stress, it expects Indian banks to maintain adequate asset quality, good profitability, and improved capitalization over the next 12-24 months.
GDP growth
India's real GDP growth averaged 8.8% between FY2022-24
India's real GDP growth averaged 8.8% between FY2022-24, the highest in Asia-Pacific. S&P expects this strength to continue, projecting average growth of 6.8% annually over the next three years. The agency also said that "India's financial institutions will continue to ride the country's good economic growth momentum," adding that these entities will benefit from their domestic focus and structural improvements in bad loan recovery systems.