Bajaj Finance Limited has received a significant boost as S&P Global Ratings revised its long-term credit outlook from 'Stable' to 'Positive'. The revision was communicated through a report dated March 17, 2025, highlighting that Bajaj Finance’s standalone credit profile (SACP) was upgraded from 'BBB-' to 'BBB'. The positive outlook reflects improving conditions in India’s regulatory environment, particularly for upper-layer financial companies (fincos), such as Bajaj Finance.

According to the S&P Global Ratings report, the positive outlook on Bajaj Finance aligns with that of India’s sovereign credit rating. Since the company's rating is capped by the sovereign credit rating, any future change in India’s rating will automatically impact Bajaj Finance’s credit outlook. As of now, the sovereign rating on India stands at BBB-/Positive/A-3.

Rationale Behind the Upgrade

The upward revision of Bajaj Finance’s credit outlook is primarily attributed to the strengthening regulatory environment in India, which has led to an enhanced operational landscape for top-tier financial institutions. The report indicates that Bajaj Finance’s standalone credit profile (SACP) has been upgraded by one notch from 'BBB-' to 'BBB', reflecting the company’s strong market position, profitability, and asset quality.

Bajaj Finance is one of India’s largest non-banking financial companies (NBFCs) specializing in financing retail assets. Its leadership in consumer durables, two-wheeler, and three-wheeler financing has solidified its position in the Indian retail lending market. Moreover, the company has consistently maintained above-average profitability and demonstrated sound financial management over the years.

Strong Market Position and Profitability

The S&P report acknowledges Bajaj Finance’s strong market position in India’s financial services sector, underpinned by its expansive retail reach. The company’s consistent profitability and ability to maintain stable earnings even under challenging economic conditions have been key factors in its credit rating improvement. Bajaj Finance’s access to low-cost funding through its affiliation with the Bajaj Group provides it with a competitive advantage, further enhancing its financial stability.

Financial Performance and Growth Projections

Bajaj Finance’s financial performance is expected to remain robust over the next two years, with projected growth rates of 25%-27% through fiscal 2026. Although the company’s pre-diversification risk-adjusted capital (RAC) ratio is likely to dip below 15% by March 31, 2026, down from 15.9% as of March 31, 2024, it is anticipated to maintain a strong capital position despite aggressive growth. The company’s focus on adequate underwriting standards and its largely mass-affluent borrower profile help mitigate risks associated with its unsecured consumer lending portfolio.

Impact of Sovereign Rating on Bajaj Finance

The credit rating of Bajaj Finance is intrinsically linked to India’s sovereign credit rating. S&P Global Ratings clarified that it does not rate Indian banks and financial companies above the sovereign rating due to the direct and indirect influence the sovereign has on the financial sector. As a result, any revision in India’s sovereign rating will directly impact Bajaj Finance’s credit outlook.

Outlook and Future Scenarios

The positive outlook on Bajaj Finance reflects that of the sovereign rating on India. S&P Global Ratings stated that it could upgrade Bajaj Finance’s credit rating if India’s sovereign rating is raised. Conversely, the outlook would be revised to stable if there is a similar change in the sovereign rating outlook.

Upside Scenario: If India’s sovereign rating is upgraded, Bajaj Finance’s credit rating is likely to be upgraded accordingly, reflecting its strong market position, adequate risk management, and favorable regulatory environment.

Downside Scenario: On the other hand, if India’s sovereign credit rating outlook is revised to stable or downgraded, Bajaj Finance’s outlook will also move in the same direction.

Capital and Earnings Strength

Bajaj Finance’s capital and earnings profile remains strong despite anticipated growth over the next two years. While the company’s risk-adjusted capital (RAC) ratio is expected to dip slightly due to high growth, it remains in a comfortable zone. The company’s credit costs are projected to stay around 2% of average loans over the next 12-24 months, reflecting its ability to manage risks effectively.

Independent and Strong Governance Structure

Bajaj Finance operates as an independent, listed entity and follows stringent regulatory guidelines that ensure its financial and operational independence from other companies in the Bajaj Group. This operational independence ensures that Bajaj Finance remains insulated from any financial stress in other group companies, reinforcing its financial stability and creditworthiness.

Conclusion: A Positive Outlook for Bajaj Finance

The revision of Bajaj Finance’s credit outlook to positive by S&P Global Ratings underscores the company’s resilience and ability to maintain a strong financial profile amid an evolving regulatory environment. With continued access to low-cost funding, a strong capital base, and stable asset quality, Bajaj Finance is well-positioned to maintain its leadership in the Indian financial services market. The company’s future credit trajectory will, however, remain closely tied to India’s sovereign rating, which will influence any potential upgrades or revisions in the coming years.

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