Global credit rating agency S&P Global has upgraded the long term issuer credit rating of Piramal Finance to BB from BB minus, reflecting improving business conditions, declining legacy stress assets, and a clearer path to sustainable profitability. The agency has also assigned a stable outlook, indicating expectations of steady operational improvement over the next year.

Piramal Finance, the lending arm of the Piramal Group, has undergone a multi year transformation following the acquisition of DHFL assets and subsequent cleanup of stressed exposures, particularly in wholesale real estate lending. The company has been pivoting toward retail loans, including housing finance and small business lending, to reduce concentration risk and improve asset quality. S&P’s decision suggests that this transition is beginning to deliver measurable results.

According to the rating agency, the upgrade reflects a significant decline in legacy loans that had previously weighed on earnings volatility. As these exposures run down, the company’s revenue profile is expected to become more predictable. S&P indicated that Piramal Finance’s core profitability should strengthen over the next two fiscal years, aided by both operational improvements and one time gains from asset sales.

The agency expects the company to report a return on assets of roughly 2.3 percent to 2.8 percent in FY2026, supported in part by proceeds from divestments in Shriram Group’s life insurance business and Piramal Imaging. Beyond FY2026, profitability is projected to stabilise at about 2.3 percent in FY2027 and improve further to 2.7 percent in FY2028 as credit costs normalise and margins expand.

Improvement in net interest margins is expected to come from a more favourable loan mix and disciplined pricing, while sizeable tax loss carry forwards could help offset future tax liabilities, boosting net earnings. S&P also highlighted the company’s strong capital position, which provides a buffer against potential shocks and supports future growth.

Financial performance in the latest reported quarter appears to reinforce this narrative. In the third quarter of the current fiscal year, Piramal Finance reported profit after tax of about Rs 400 crore, a sharp increase from Rs 39 crore in the same period a year earlier. Revenue rose modestly to Rs 2,918 crore from Rs 2,832 crore, indicating that profitability gains were driven more by cost normalisation and lower provisions than by aggressive balance sheet expansion.

The stable outlook attached to the rating suggests that S&P expects the company to continue improving profitability and asset quality in an orderly manner over the next 12 months rather than through rapid or risky growth. The agency also anticipates that Piramal Finance could gain market share as confidence among lenders and investors improves.

For India’s non bank financial company sector, the upgrade carries broader implications. Funding access and borrowing costs are heavily influenced by credit ratings, particularly for NBFCs that rely on market borrowings rather than low cost deposits. A higher rating can translate into cheaper wholesale funding, improved bond market access, and stronger relationships with banks. This, in turn, may enable Piramal Finance to compete more effectively with larger peers in retail lending.

From a market perspective, the development is likely to be viewed as a positive signal for the group’s financial services strategy. Investors often treat rating upgrades as validation of management’s turnaround efforts. However, the impact on listed entities within the Piramal Group will depend on how much of the improved outlook translates into sustained earnings growth.