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Informist, Thursday, Apr. 30, 2026

 

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--S&P: See Brent crude $130/bbl 2026 in downside scenario of prolonged war 
--S&P: India lenders with higher exposure to used vehicles more vulnerable 
--S&P: Stress for India fin cos likely to show in CV, microfin loans 
--S&P:Stress for India fin cos likely to show in small-ticket unsecured loans 
--S&P: Higher fuel, transport costs likely to erode real disposable incomes 
--S&P:India households, farmers may face pressure from low disposable income 
--S&P: India households, farmers may face pressure from higher CPI 
--S&P:Prolonged oil shock can pressure credit costs, profit of India fin cos 
--S&P: Prolonged oil shock may weaken India econ momentum, employment 
--S&P: Don't see prolonged oil shock, major hit to India's economic momentum 
--S&P:To assess fin cos badly if asset quality risks structural, not one-off 
--S&P: India fin cos' earnings can be squeezed if asset quality worsens 
--S&P:Two India fin cos can face downgrades if asset quality sharply worsens 
--S&P:India fin cos' regulatory capital adequacy to hold even if NPAs double 
--S&P: India fin cos have earnings buffer to handle oil shock effect 
--S&P: India fin cos have adequate capital buffer to handle oil shock effect 
--S&P: Rated India fin cos have solid defences that could come under stress

 

NEW DELHI – India's rated finance companies have solid defences that could still come under stress amid the ongoing West Asia war, S&P Ratings said Thursday. Pockets of stress are likely to emerge in unsecured segments, particularly among self-employed borrowers and micro and small enterprises, with potential spillovers into vehicle loans and affordable housing, it said. 

 

"Risks from the Middle East war primarily centre on higher energy prices and supply-chain disruptions. These factors could weaken cash flows, compress margins, and raise refinancing risks for corporate and micro, small and mid-sized enterprises borrowers," the rating agency said. "In turn, nonpayment rates may rise, straining the fincos' credit health." 

 

The US-Israel war on Iran, which started on Feb. 28, has dented oil and gas supply due to attacks on oil refineries in the West Asia region and also because of the closing of the Strait of Hormuz. Supply of energy to India has also been disrupted as nearly 45% of India's crude oil imports and around 90% of LPG imports pass through the Strait. 

 

Since the war broke out, Brent crude oil prices jumped and on Thursday, touched a four-year high of $126 per barrel compared with sub-$73 a barrel print before Feb. 28. The Reserve Bank of India has already projected headline inflation to average 4.6% in 2026-27 (Apr-Mar) and after more than a year of risks to inflation being "evenly balanced", said that risks to inflation forecasts are on the upside.

 

As per latest data, CPI inflation rose to a one-year high of 3.4% in March, driven by higher food and utilities inflation, although higher energy prices and choked supplies had a limited impact during the month.

 

S&P said that it does not forecast the oil shock will be prolonged or cause a major hit to India's economic momentum. However, a downside scenario of a prolonged oil shock can dampen India's economic growth and weaken employment, pressuring credit costs and profitability for the finance companies. It also said that a downside scenario of a prolonged conflict indicates oil prices will go even higher, with the average Brent crude oil price increasing to $130/barrel in 2026.

 

Households and farmers are likely to face pressure from higher inflation and reduced disposable incomes, according to the rating agency. Higher fuel and transportation costs are likely to erode real disposable incomes, with second-order effects feeding into food and other essential categories. "This could gradually weaken household repayment capacity, particularly in lower-income cohorts," it said. 

Stress is likely to emerge first in small-ticket unsecured segments, commercial vehicle loans, and microfinance. Over time, this could spill over--albeit more gradually--into secured products such as vehicle loans and affordable housing, the report said. Within commercial vehicle financing, lenders with higher exposure to used vehicles are relatively more vulnerable, given weaker borrower profiles and greater sensitivity to income shocks, it added.

 

Other indirect hits for finance companies from the West Asia war can come through capital losses in their investment portfolios or refinancing risk in a tighter liquidity environment, the report said. Finance companies remain more susceptible to confidence-driven funding shocks, given their greater reliance on market borrowings and comparatively thinner liquidity buffers. Finance companies will, however, be seen prioritising liquidity preservation and maintaining adequate buffers, even at the cost of near-term margin compression, S&P Global said.

 

The rating agency said that if the oil shock is prolonged, downgrade pressure can likely come from three areas: a severe asset quality shock, refinancing challenges, and rising risks of a sovereign downgrade. That said, it believes Indian finance companies have sufficient capital and earnings buffers to handle the effects of the oil shock.

 

"Our scenario analysis indicates the regulatory capital adequacy of Indian fincos (finance companies) would hold even if non-performing loans (NPLs) doubled," S&P Global Ratings credit analyst Geeta Chugh said. "Nonetheless, on our risk-adjusted capital basis, two companies would see sharp erosion and face downgrades," she said. "Likewise, earnings of the rated fincos could be squeezed if asset quality sharply deteriorates."

 

The rating agency's assessment of the risk positions of the entire sector or select companies can weaken if some of the asset quality risks are seen as structural instead of a one-off shock, the report added. "We believe the energy price shock won't last forever, and that fincos (finance companies) should generally be able to withstand the stress."  End

 

US$1 = INR 95.16

 

Reported by Priyasmita Dutta

Edited by Akul Nishant Akhoury

 

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