India's strong macroeconomic trends improve credit quality of finance companies: S&P Global

The credit quality of Indian finance companies will continue to improve owing to the country's strong macroeconomic trends, said S&P Global Ratings. The improvement in credit profiles of finance companies will be far from uniform, said S&P Global credit analyst Deepali Seth Chhabria.

"Stronger companies will likely gain market share, given their better funding access. Meanwhile, weaker players could resort to originate-and-distribute business models to tide over the liquidity stress," Chhabria said.

Higher inflation or interest rates than expected remain key risks to S&P Global's forecasts. Rising interest rates are likely to push up borrowing cost for Indian finance companies.

Companies with strong governance and parentage are likely to fare better than others. Emerging co-lending models are easing the liquidity stress. "We expect bank borrowings to dominate incremental funding in 2023," S&P Global said.

The outlooks on most rated finance companies are stable, reflecting their strong earnings, capitalization, and improving asset quality.

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