(Corrects to 'fincos' in first and second paragraphs)
S&P Global Ratings expects its rated Indian finance companies (fincos) to have ample capital and earnings cushion to mitigate the effects of the oil shock, according to a recent release.
Indian fincos' regulatory capital adequacy would endure even a doubling of nonperforming loans, according to S&P credit analyst Greta Chugh.
However, two companies would observe significant declines and face downgrades on S&P's risk-adjusted capital basis, the analyst said.
Earnings would also suffer under sharply declining asset quality, Chugh said.
The rating agency's risk assessment for the sector or some companies could erode if asset quality risks are structural rather than a one-off shock.
S&P does not forecast a prolonged oil shock or a major constraint on India's economic growth, but a downward scenario of a lingering shock would hit growth and employment as well as squeeze fincos' credit costs and profitability.
Household repayment capacity could gradually decline amid higher inflation and less disposable income, S&P said.
Stress will likely first hit small-ticket unsecured segments, commercial vehicle loans, and Microfinance, with gradual spillover effects on secured products such as vehicle loans and affordable housing, Chugh said.