High foreign ownership positive for Indian financial institutions: Fitch

New Delhi

Fitch Ratings on Tuesday said significant ownership by foreign shareholders can be positive for Indian financial institutions' credit profiles through long-term capital, as well as the lifting of governance standards in some cases.

However, the rating agency noted that foreign interest is not in itself a reliable signal of stronger credit fundamentals. Transactions that strengthen internal controls, risk management and leadership accountability can be more credit-relevant than those purely for financial gains.

Fitch said recent greater interest from foreign investors indicates their rising confidence in India's long-term growth prospects, the financial sector's regulations and oversight and improved risk governance. Fitch believes investors will seek platforms with scalable distribution and local expertise.

"Acquirors with experience in developed markets may introduce enhancements in risk controls and board oversight," it said, adding that the presence of reputable strategic shareholders can potentially ease the cost of capital. These factors can contribute towards strengthening the standalone credit profile of financial institutions.

"Significant ownership by foreign shareholders can be positive for Indian financial institutions' credit profiles through long-term capital and funding flexibility, business franchise enhancement, as well as lifting of governance standards in some cases," Fitch said in a statement on Tuesday.