In a separate release, S&P Global Ratings also revised the rating outlook on Axis Bank and ICICI Bank to negative from stable.
S&P Global Ratings on Friday lowered the rating of Shriram Transport Finance to ‘BB’ from ‘BB+ and revised its outlook to negative for another four non-banking financial companies (NBFCs). The rating actions are a reflection that Indian NBFCs face increasing risks from challenging operating conditions stemming from the outbreak of novel coronavirus.
The rating agency revised the outlook to negative for Bajaj Finance, Manappuram Finance, Muthoot Finance and Power Finance Corporation. According to the rating agency, the economic risk for Indian financial institutions is rising and economic conditions have turned adverse due to the COVID-19 pandemic. Drastic efforts to curtail the spread of the novel coronavirus has resulted in a sudden stoppage in economic activity.
In a separate release, S&P Global Ratings also revised the rating outlook on Axis Bank and ICICI Bank to negative from stable. That’s because heightened economic risks facing India’s banking system may affect the creditworthiness of these banks. At the same time the rating agency believes that other private-sector peers such as HDFC Bank and Kotak Mahindra Bank have stronger asset quality and would be able to withstand the weakness in operating conditions.
However, the rating agency revised Indian Bank’s stand-alone credit profiles (SACP) to ‘BB+’ from ‘BBB-‘ based on its expectation that the bank’s capitalisation will deteriorate following its merger with the much-weaker Allahabad Bank.
S&P Ratings lowered the ratings on Shriram Transport Finance due to its expectation that funding conditions for the company could tighten amid challenging operating conditions and weakness in asset quality.
“We have therefore revised our funding assessment to moderate from adequate. Shriram Transport’s dominant market position as India’s largest commercial vehicle financier and its strong capitalisation continue to support the ratings,” said the rating agency in its release.
However, for Bajaj Finance, S&P Global affirmed its ‘BBB-‘ rating due to its strong market position and comfortable capital levels. “The negative outlook on Bajaj Finance reflects our view that there is a one-in-three chance that we will lower the rating over the next 12 months due to rising economic risks in the Indian financial sector,” stated S&P Global.
While for Manappuram Finance and Muthoot Finance, S&P Global’s negative outlook reflects its view that both the companies are not immune to heightened economic risks affecting India’s financial system over the next 12-18 months. Finance companies also face accentuated liquidity risks.
“As a large proportion of borrowers opt for the moratorium, cash inflows for finance companies may be limited, making them dependent on their liquid assets and refinancing to service their upcoming debt maturities,” said S&P Global in its release.