In a significant move following India’s first sovereign credit rating upgrade in 18 years to ‘BBB/Stable/A-2’, S&P Global Ratings has upgraded the credit ratings of 10 Indian financial institutions, including seven banks and three finance companies. The upgrades reflect improving macroeconomic conditions, robust reforms, and a maturing credit culture.
Sovereign Upgrade Sparks Institutional Confidence
- Strong GDP growth: Averaging 8.8% between FY22 and FY24, the highest in the Asia-Pacific.
- Improved inflation management.
- Structural reforms: Like the Insolvency and Bankruptcy Code (IBC).
- Resilient financial system.
Financial Institutions Upgraded
Seven Indian Banks
- Strong domestic presence.
- Improved asset quality.
- Expected good profitability and capitalisation over the next 12–24 months.
Three Finance Companies
- Robust lending portfolios.
- Better compliance post-reforms.
- Reduced systemic risks and improved recovery mechanisms.
Reforms Driving Credit Stability
- Insolvency and Bankruptcy Code (IBC):
- Enacted in 2016, this has significantly improved India’s credit environment.
- Resolution time: Reduced for bad loans from 6–8 years to under 2 years.
- Recovery rates: Improved to over 30%, up from 15–20% previously.
- Encouragement of debt restructuring and going-concern recovery.
Economic Momentum Supports Ratings
S&P projects India to continue growing at an average of 6.8% annually over the next three years. This stability, along with aligned monetary policy and inflation management, supports the health of the financial sector.
Key Takeaways for Competitive Exams
- India’s first sovereign credit rating upgrade in 18 years to ‘BBB/Stable/A-2’.
- Strong GDP growth averaging 8.8% between FY22 and FY24.
- Improved inflation management and a resilient financial system.
- Significant reforms like the Insolvency and Bankruptcy Code (IBC) driving credit stability.
- S&P upgrades ratings of seven banks and three finance companies.
