Context:
Following the regulatory changes by RBI, S&P Ratings upgraded the ratings of Muthoot Finance, Shriram Finance, and Sammaan Capital. The newly adopted regulatory provisions strengthened the financial stability and also promoted sustainable growth.
RBI’s Scale based Regulation Framework
- Established in October 2022.
- Progressively regulation based on size and risk profile of the NBFCs.
- Upper layer: for stricter supervision of large NBFCs.
Key Regulatory Measures
- Minimum 9% Common equity Tier 1 capital to risk weighted assets as per capital adequacy norms.
- Standard Assets Provisioning to be at par with that of banks.
- More details on large exposure framework to monitor closely.
Effects on Financial Companies
- More sounder and stable financial position.
- Improved practice of risk management.
- Higher market and investor confidence with large NBFCs.
What is S&P?
The Standard and Poor’s 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States.
S&P’s Observation
- RBI measures have further helped in making the sector more resilient.
- The rating upgrade is a reflection of increased stability and better governance in these major NBFCs.
Indeed, the scale based regulation approach of the RBI has forged a stronger and more stable financial ecosystem for large NBFCs. As a result, Muthoot Finance, Shriram Finance, and Sammaan Capital among the institutions are well positioned to sustain growth and long term trust in the market.
Source: BS
