S&P Global Upgrades Ratings For 10 Indian Financial Institutions

SINGAPORE: Global rating agency S&P Global on Thursday upgraded 10 Indian financial institutions (see list below). This follows a similar action on the sovereign credit rating on India (BBB/Stable/A-2). They have also raised the issue and program ratings on these entities by one notch.

They revised upward their assessment of the stand-alone credit profiles of State Bank of India, Axis Bank Ltd., Kotak Mahindra Bank, Union Bank of India, Indian Bank, Tata Capital Ltd., and L&T Finance Ltd. by one notch each due to likely improvement in their risk adjusted capital (RAC) ratios. The gains will be driven by fresh capital raising or benefits from lower risk weights due to a reduction in economic risk and the sovereign upgrade.

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

They say, some of the factors benefiting the sovereign’s creditworthiness will have a positive effect on operating conditions for financial institutions in India. In particular, infrastructure spending will likely pave the way for robust economic growth, which will support banks’ asset quality (see “India Upgraded To ‘BBB’ On Economic Resilience And Sustained Fiscal Consolidation; Outlook Stable,” published Aug. 14, 2025).

The insolvency and bankruptcy code (IBC) has improvedthe payment culture and rule of law in India. The code, introduced in 2016, has tilted the balance in favor of the creditors. It has also promoted a credit culture that encourages restructuring of going-concern entities. The IBC has reduced the average resolution time for bad loans to less than two years now, according to official data, from six to eight years earlier. Recovery values have also improved to more than 30%, from 15%-20% under the previous bankruptcy regime.

As such, they believe credit risk in the system has reduced. Accordingly, we have revised upward our economic risk assessment for the Indian banking system to ‘5’ from ‘6’. Our Banking Industry Country Risk Assessment (BICRA) for India remains unchanged at group ‘5’. And the economic and industry risk trend remains stable.

The asset quality of Indian banks will remain healthy.This reflects structural improvements in operating conditions and good economic prospects. Credit losses could inch up to 0.8%-0.9% over the next 12-24 months from decade-low levels of 0.6% in fiscal 2025 (ended March 31, 2025). However, they will compare favorably with long-term average credit costs of 1.5%. Pockets of stress have emerged in some asset classes, namely small-ticket unsecured personal loans, credit cards, commercial vehicle financing, and microfinance loans. These segments have grown rapidly over the past few years and have contributed to incremental growth in nonperforming loans. They believe underwriting standards for secured retail loans are healthy in the Indian banking system, and delinquencies will remain manageable. Tightening regulations and stricter guardrails in microfinance should also contain asset-quality strains.

India’s sound growth prospects and falling interest rates will also support banks’ asset quality. We project the banking sector’s weak loans (including standard restructured advances) will remain at 3.0%-3.1% of gross loans at the end of March 2026, in line with the decade low of 3.0% as of March 31, 2025.

The rise in credit costs and a possible dip in margins could drive down the return on average assets (RoAA) of Indian banks to 1.2%-1.3% in fiscal 2026, comparable to that of global peers.

Risk-adjusted capitalization will stay strong.This will be supported by good profitability, capital-raising plans of some state-owned banks and financial institutions, and a likely moderation in loan growth. S&P Global Ratings’ RAC ratio for the banking sector will also benefit from lower risk weights due to a reduction in economic risk and the upgrade of the sovereign.

Rating Actions On Individual Entities

HDFC Bank Ltd.

(Primary Credit Analyst: Shinoy Varghese)

Their upgrade of HDFC Bank follows a similar rating action on India. They maintained our assessment of the bank’s SACP at ‘a-‘.

They expect their RAC ratio for HDFC Bank to be 13.5%-14.5% over the next two years, benefiting from lower risk weights because risks are recalibrated to reflect India’s improved economic environment and the upgrade of the sovereign. They expect the bank’s capitalization to also improve thanks to proceeds from the IPO of subsidiary HDB Financial Services Ltd. (HDB) for Indian rupee (INR) 125 billion in fiscal 2026.

The sovereign rating continues to cap the rating on HDFC Bank because they do not rate Indian banks above the sovereign. This is due to the direct and indirect influence the sovereign has on banks operating in India.

Outlook

The stable rating outlook on HDFC Bank reflects that on the sovereign. They expect HDFC Bank to maintain its solid market position, strong capitalization, and low credit costs over the next two years.

The outlook also reflects our view that HDFC Bank’s strong management and governance structure will continue to underpin its above-average financial performance over the next two years.

Downside scenario

A downgrade of HDFC Bank is unlikely over the next two years.

They could lower the ratings on the bank if they downgrade India or if they revise downward the SACP by three notches, both of which are unlikely in the next two years.

They could lower the SACP on HDFC Bank if they were to no longer regard its risk management practices and underwriting standards as superior to those of its peers.

Upside scenario

They could upgrade HDFC Bank if they raise their sovereign ratings on India.

ICICI Bank Ltd.

(Primary analyst: Aurick Soh)

Their upgrade of ICICI Bank follows a similar rating action on India. They continue to assess the bank’s SACP at ‘a-‘.

They estimate the bank’s RAC ratio will be 12.5%-13% over the next 24 months. The ratio will benefit from lower risk weights because they have recalibrated them to reflect India’s improved economic environment and the upgrade of the sovereign.

The rating on ICICI Bank is capped by the sovereign rating and will therefore move in tandem with that on the sovereign. They do not rate Indian banks above the sovereign due to the direct and indirect influence the sovereign has on banks operating in the country.

Outlook

The stable rating outlook on ICICI Bank reflects that on the sovereign.

They expect ICICI to maintain its strong position in the Indian banking sector. The bank’s asset quality is likely to remain better than the Indian sector average, and comparable to that of similarly rated international peers.

Their analysis say, ICICI will maintain good capitalization over the next two years, on the back of healthy earnings. The bank will also likely maintain its solid funding and liquidity profile over the period.

Downside scenario

A downgrade of ICICI is unlikely, in our view.

They could lower the ratings on the bank if they downgrade India or if we revise downward the SACP by three notches, both of which are unlikely in the next 24 months.

They may revise downward our assessment of ICICI’s SACP if the bank’s asset quality deteriorates. This could happen if above-average credit growth results in a buildup of credit risk.

Upside scenario

State Bank of India

(Primary analyst: Aurick Soh)

Their upgrade of SBI follows a similar rating action on India.

At the same time, they revised upward their assessment of the bank’s SACP to ‘bbb+’ from ‘bbb’ to reflect its improving capitalization. SBI’s capital infusion of INR250 billion in July 2025 will bolster its capital. SBI’s risk-adjusted capital will also benefit from lower risk weights because risks are recalibrated to reflect India’s improved economic environment and the upgrade of the sovereign. The bank’s RAC ratio should therefore improve to 7.0%-7.5% over the next 24 months, from 5.9% as of March 31, 2024.

They forecast SBI’s return on assets will stay at 0.9%-1.0% over next two years, supported by the bank’s contained credit costs amid a benign credit cycle in India.

The rating on SBI remains capped by the sovereign rating because they do not rate Indian banks above the sovereign. This is due to the direct and indirect influence the sovereign has on banks operating in the country.

Outlook

The stable rating outlook on SBI reflects that on the sovereign. They expect the bank to maintain its market leadership in India’s banking sector over the next two years. SBI’s funding and liquidity will stay strong, supported by high customer confidence.

They think that the bank’s asset quality will remain better than the Indian sector average and comparable to that of similar rated international peers. SBI’s capitalization is adequate, though slightly weaker than that of private sector banks in India. Their ratings on SBI continue to factor in a very high likelihood of government support for the bank.

Downside scenario

A downgrade of SBI is unlikely over the next two years, in our view.

Their assessment of the bank’s SACP will need to weaken by three notches for that to happen. The SACP could come under pressure if SBI is unable to sustain improved capitalization levels, such that we expect the RAC ratio to dip below 7% on a sustainable basis.

Upside scenario

Axis Bank Ltd.

(Primary analyst: Aurick Soh)

They upgrade of Axis Bank follows a similar rating action on India.

At the same time, They revised upward our assessment of Axis Bank’s SACP to ‘bbb+’ from ‘bbb’. This reflects the bank’s strengthened risk-adjusted capitalization, partly due India’s improved economic environment and the resultant lower risk weights for the bank’s exposures. They forecast Axis Bank’s RAC ratio will stay above 10% (commensurate with a strong assessment) over the next 24 months. This is despite our forecast that the bank’s return on assets will decline moderately to 1.4%-1.5% over next two years, driven by lower margins and elevated credit costs.

The rating on Axis bank is capped by the sovereign rating and will therefore move in tandem with that on the sovereign. They do not rate Indian banks above the sovereign due to the direct and indirect influence the sovereign has on banks operating in the country.

Outlook

The stable rating outlook on Axis Bank reflects our view that the bank will maintain its strong market position in India’s banking sector over the next two years. Axis Bank’s asset quality should stay comparable to that of similarly-rated international peers.

Downside scenario

A downgrade of Axis Bank is unlikely over the next two years. Their assessment of the bank’s SACP will need to weaken by two notches for that to happen.

They could lower their assessment of the SACP by a notch if Axis Bank is unable to sustain a RAC ratio above 10%. This could happen if Axis Bank’s loan growth accelerates, credit costs are materially higher, or margins significantly contract, hitting internal capital generation.

Upside scenario

They could upgrade Axis Bank if we raise our sovereign rating on India.

Kotak Mahindra Bank

(Primary analyst: Aurick Soh)

They upgrade of Kotak Mahindra Bank follows a similar rating action on India.

At the same time, they revised upward our assessment of Kotak Mahindra Bank’s SACP to ‘bbb+’ from ‘bbb’. This reflects the bank’s strengthened risk-adjusted capitalization, partly due to India’s improved economic environment, the sovereign upgrade and the resultant lower risk weights for the bank’s exposures. They expect Kotak Mahindra Bank’s RAC ratio to sustain above 15% (commensurate with a very strong assessment) over the next 24 months. They forecast the bank’s return on assets will decline moderately to 2.3%-2.4% over next two years, driven by lower margins and elevated credit costs.

The rating on Kotak Mahindra Bank is capped by the sovereign credit rating on India because they do not rate Indian banks above the sovereign. This is due to the direct and indirect influence that the sovereign has on banks operating in the country.

Outlook

The stable rating outlook on Kotak Mahindra Bank reflects their view that the bank’s capitalization will stay very strong over the next two years. They believe Kotak Mahindra Bank’s good risk management and deposit stability will support its credit profile.

Downside scenario

A downgrade of Kotak Mahindra Bank is unlikely over the next 12-24 months. Their assessment of the bank’s SACP will need to weaken by two notches for that to happen.

They could lower our assessment of the SACP by a notch if Kotak Mahindra Bank makes strategic mis-steps, such that the bank’s asset quality or funding profile deteriorates materially for a sustained period.

Upside scenario

Union Bank of India

(Primary analyst: Aurick Soh)

Their upgrade of Union Bank of India (UBI) follows a similar rating action on India. They see a very high likelihood that the government would provide the bank with timely and sufficient extraordinary support in the event of financial distress.

They revised upward their assessment of UBI’s SACP to ‘bbb-‘ from ‘bb+’ to reflect our view that the bank will be able to maintain its strengthened capital levels over the next 24 months. UBI’s capitalization has increased due to lower risk weights reflecting India’s improved economic conditions. They expect UBI to maintain its RAC ratio at 8%-9% over the next 24 months, compared with 8.8% as of March 31, 2025 (calibrated from economic risk of ‘5’ and sovereign ratings of ‘BBB’).

They have not factored any capital infusion in our assumptions. UBI’s capital will get a boost if the bank goes ahead with its equity raising plan of INR30 billion. However, they still expect capitalization to remain in the adequate category.

They believe UBI’s adequate earnings and average dividend payout ratio of about 25% should be sufficient to sustain loan growth of 9%-12%. As such, we have revised our capital and earnings assessment for the bank to adequate from moderate.

Outlook

The stable rating outlook on UBI reflects their view that the bank will sustain its improved capital position over the next 24 months, and the likelihood of government support for the bank will remain very high.

Downside scenario

They could lower the ratings if they downgrade India or if they revise downward UBI’s SACP.

The SACP could weaken by a notch if UBI’s funding profile deteriorates. This could be indicated by a lower deposit market share, a sustained drop in low-cost deposits, or a sustained increase in the loan-to-deposit ratio. They could also revise the bank’s SACP downward if UBI’s risk management and asset quality weaken materially.

Upside scenario

They could upgrade UBI if they raise the sovereign ratings on India and revise the bank’s SACP upward. They view this scenario as unlikely over the next 24 months.

The bank’s SACP could rise by a notch if its asset quality improves to a level similar to that of larger Indian banks.

Indian Bank

(Primary analyst: Aurick Soh)

Their upgrade of Indian Bank follows a similar rating action on India. They see a very high likelihood that the government would provide the bank with timely and sufficient extraordinary support in the event of financial distress.

At the same time, They revised upward their assessment of Indian Bank’s SACP to ‘bbb-‘ from ‘bb+’ to reflect their view that the bank will be able to sustain improvement in its capital buffers over the next two years. They expect Indian Bank to maintain its RAC ratio sustainably at 9.0%-9.5% over the next two years, compared with 7.9% as on March 31, 2025. This is due in part to lower risk weights because they have recalibrated risks to reflect India’s improved economic environment and the upgrade of the sovereign.

They have not factored any capital infusion into our assumptions. Indian Bank will further strengthen its capital if it goes ahead with a plan to raise INR50 billion in equity. However, they expect the bank’s RAC ratio to remain below 10.0%. Accordingly, they have revised our capital and earnings assessment for the bank to adequate from moderate.

Outlook

The stable rating outlook reflects their view that Indian Bank will sustain its improved capital position, as well as their expectation that the likelihood of government support for the bank will remain very high over the next two years.

In our view, Indian Bank will maintain solid funding and liquidity over the next two years, supported by high customer confidence.

Downside scenario

They could downgrade Indian Bank if they lower the sovereign ratings on India or if they revise downward the SACP on the bank. They could lower the SACP by a notch if the bank’s risk management and asset quality weaken materially. This could happen, for example, due to strategic missteps.

Upside scenario

They could upgrade Indian Bank if they raise their sovereign ratings on India and our assessment of the bank’s SACP improves. They view this scenario as unlikely over the next 24 months.

They could raise the SACP by a notch if the bank’s RAC ratio rises above 10% sustainably or its asset quality improves to a level similar to those of larger Indian banks.

Bajaj Finance Ltd.

(Primary analyst: Shinoy Varghese)

Their upgrade of Bajaj Finance follows a similar rating action on the India sovereign. Their assessment of the finance company’s SACP remains unchanged at ‘bbb’.

Bajaj Finance’s creditworthiness benefits from the company’s strong market position in the financing of consumer durables and two- and three-wheelers, and its adequate liquidity.

They expect Bajaj Finance to sustain its RAC ratio above 15%, in line with a very strong capital and earnings assessment over the next 12-24 months. The ratio was 18.9% as of March 31, 2025, benefiting from lower risk weights because risks are recalibrated to reflect India’s improved economic environment and the upgrade of the sovereign.

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