S&P upgrades ratings of 10 financial institutions, including SBI, HDFC Bank

The ratings on many Indian financial institutions are capped by our sovereign rating on India.

S&P Global Ratings on Friday upgraded ratings of top 10 financial institutions, including SBI, HDFC Bank and Tata Capital, a day after the US-based agency raised India's sovereign credit rating.

"India's financial institutions will continue to ride the country's good economic growth momentum. These entities will benefit from their domestic focus and structural improvements in the system such as in the recovery of bad loans, " S&P said.

S&P has raised long-term issuer credit ratings on seven Indian banks -- State Bank of India, ICICI Bank, HDFC Bank, Axis Bank Ltd, Kotak Mahindra Bank, Union Bank of India, and Indian Bank -- and three finance companies -- Bajaj Finance, Tata Capital, and L&T Finance.

"We expect India's banks to maintain adequate asset quality, good profitability, and enhanced capitalization over the next 12-24 months. This is despite some pockets of stress," S&P said, adding, credit risk in the system has reduced.

S&P had on Thursday upgraded India's credit rating to 'BBB', after a gap of over 18 years, as it expects India's sound economic fundamentals to underpin growth momentum over the next 2-3 years. It also said monetary policy settings have become increasingly conducive to managing inflationary expectations.

The ratings on many Indian financial institutions are capped by our sovereign rating on India. This is due to the direct and indirect influence that the sovereign has on financial institutions operating in the country, S&P said.

It also said that the insolvency and bankruptcy code (IBC) has improved the payment culture and rule of law in India. The code, introduced in 2016, has tilted the balance in favour of the creditors. It has also promoted a credit culture that encourages restructuring of going-concern entities.

On Thursday, S&P Global Ratings had also raised credit ratings on Oil and Natural Gas Corp. Ltd. (ONGC), Power Grid Corp. of India Ltd., NTPC Ltd., and Tata Power Co. Ltd. to 'BBB' from 'BBB-'. The outlooks are stable.

S&P Global Ratings also raised its long-term issuer credit ratings on the Export-Import Bank of India (India Exim) and Indian Railway Finance Corp. (IRFC) to 'BBB' from 'BBB-'.