S&P, Fitch Assign ‘BBB-’ To L&T Finance; S&P Sees Retail Shift Aiding Profile

S&P Global Ratings and Fitch Ratings on Friday assigned a long-term issuer rating of ‘BBB-’ to L&T Finance Ltd., aligning it with India’s sovereign rating. S&P also gave the non-bank lender an ‘A-3’ short-term rating, with a positive outlook on the long-term rating, while Fitch’s outlook remained stable.

S&P said the shift towards a more diversified retail lending book would strengthen L&T Finance’s risk profile. It expects legacy wholesale and security receipt exposures to recover with economic growth. Fitch added that L&T Finance’s classification as an upper-layer NBFC by the Reserve Bank of India ensures tighter oversight, partially offsetting risks.

S&P projects retail loan growth at 35% in 2025-26, moderating to 15% in the following two years. Capital to risk-weighted assets may ease to 14.5–15.0% over the next two years from 16.9% in March. While higher secured loans may pull yields down, return on assets could rise to 2.6% by 2027-28 from 2.4% in 2024-25, as credit costs fall to 2.0%.

The company’s rural and agri exposure carries higher credit costs due to low-ticket, high-yield unsecured loans. Still, Fitch noted tighter underwriting has brought down the non-performing loan ratio to 3.3% in 2024-25 from 4.1% in 2021-22.

Both agencies noted L&T Finance would likely receive extraordinary support from parent Larsen & Toubro Ltd., which held a 66.16% stake as of end-June. Fitch assigned a shareholder support rating of ‘bbb-’, but warned that any weakening in the parent’s ability to support the NBFC would be a key risk for a downgrade.