S&P Upgrades Shriram, Muthoot, Sammaan Capital Due to New NBFC Rules

S&P Ratings, the global rating agency has reported an increased rating for the long term projections of three Indian non-banking finance companies. Shriram Finance, Muthoot Finance, and Sammaan Capital received an upgrade by one notch. Now, Shriram Finance and Muthoot Finance Lowers’ ratings are  “BB” and “BB+” respectively, while Sammaan Capital has increased from “B” to “B+”. The move comes following the improvement in the country’s regulatory practices for NBFCs.   S&P also confirmed the ratings for Tata Capital Ltd and Piramal Capital & Housing Finance Ltd while changing Bajaj Finance Ltds rating outlook from ‘stable’ to ‘positive’.   The rating agency commented on India’s supervision of large non-bank finance NPCs, stating, “We think has sustainably improved with a shift in the changeable regulation. It has also strengthened the financial stability and sustainable growth of these companies.”

RBI's scale-based regulations reinforce the stability of Non-banking Financial Companies (NBFCs )

S&P seems to suggest Upper-layer NBFCs would benefit most from the diferentiated regimes offered by the Reserve Bank of India's (RBI) Scale-based regulation (SBR). It is said that Scale-based regulations have enhanced the stability of the financial system, enabling sustainable growth among the largest NBFCs and improving accompanying risk management, transparency, and compliance. “We have accordingly lowered the starting point for rating upper-layer NBFCs in India to ‘bb+’ from ‘bb’ and other finance companies ‘bb’ are expected to be the same,’’ S&P commented. 

RBI financial system supervision and regulation has always been tougher on Larger Non-banking financial companies as compared to smaller player. Upper-layer NBFCs face more stringent guidelines than smaller players including mandatory listing and disclosure requirements, stricter capital adequacy norms, and more provisioning needs.

Positive projection of country’s economy enhances NBFC expansion

These changes in regulations are set to be implemented while the Indian economy is on a higher growth plan. The large NBFCs are expected to work along the banks in providing services to customers in financing, especially for the retail sector and small and medium enterprises. “The estimated GDP growth for 2025-26 is 6-7 percent” S&P commented.

Most Upper-layer NBFCs are of substantial size and have total assets and loans that are comparable to Indian mid-sized banks. In general, these companies have sound capitalisation which will withstand the credit expansion in the next 2 years while also providing a cushion against downside risks, added S&P.