IGI Logo

Synopsis

• In May 2023, banks’ outstanding credit to non-banking financial companies (NBFCs) rose by 27.6% (y-o-y) to reach Rs.13.4 lakh crore. This growth can be attributed to several factors, including the base effect, the improved financial position and the growing visibility of NBFCs. The lending to NBFCs continued in FY24, albeit at a marginally lower rate.

• The Mutual Fund (MF) debt exposure to NBFCs rose by 15.7% y-o-y to Rs.1.7 lakh crore.

• MFs’ debt exposure to NBFCs has increased to 12.8% of banks’ exposure to NBFCs in May 2023 from 10.97% in March 2023 and 10.8% in February 2023. This figure was 11.5% in January 2023 and 14.1% in May 2022.

Banks O/s Credit to NBFCs Continues its Robust Growth, MFs Pare Exposure

Banks’ outstanding credit to NBFCs rose by Rs.2.9 lakh crore over the last 12 months. Meanwhile, MF debt exposure (CPs and Corporate Debt) to NBFCs increased by 15.7% y-o-y to Rs.1.71 lakh crore in May 2023, and sequentially by 6.9% from April 2023 levels.

Figure 1: Summary of Banks Loans and MFs NBFC Debt Exposure (Rs. lakh crore)

The data in Figure 1 does not include liquidity made available to NBFCs by banks via the securitization route (direct assignment & pass-through certificates) and investments made by banks in the NBFCs’ capital market issuances. Liquidity availed by NBFCs including HFCs through the securitisation route crossed approximately Rs 1.7 lakh crore in FY23.

Figure 2: NBFC Debt Sources (Rs lakh crore)

Compared to February 2018 numbers, absolute bank lending to NBFCs has more than tripled, while MF exposure has broadly reduced by around 25% over the last five years. If May 2023 data is compared with February 2020 numbers, bank borrowings have increased by 59.5%, MF Corporate Debt exposure has reduced by 23.5%, and MF CP exposure has increased by 51.5%.

MFs debt exposure to NBFCs has increased to 12.8% of Banks’ exposure to NBFCs in May 2023 from 10.97% in March 2023 and 10.8% in February 2023. This figure was 11.5% in January 2023 and 14.1% in May 2022.

Figure 3: Growth in Bank Credit to NBFCs vis-à-vis overall Bank Credit Growth

The latter part of FY22 saw healthy growth in bank credit to NBFCs, which continued its trajectory in FY23. This growth can be attributed to several factors, including the base effect, the improved financial position and the growth visibility of NBFCs. The lending to NBFCs has continued in FY24, albeit at a marginally lower rate. As of May 2023, lending to NBFCs accounted for 4.8% of the incremental lending of aggregate credit.

The debt assets under management (AUM) of mutual funds increased 2.5% y-o-y to Rs.13.7 lakh crore in May 2023. This increase can be attributed to an increase in liquid funds, Ultra Short Duration Funds, and Money Market Funds which more than offset the drop in overnight funds. This slow increase can be attributed to the popularity of equity funds, fixed-term plans (FMP) losing popularity, and alternate investment avenues.

To Read Complete Report & Disclaimer Click Here

Above views are of the author and not of the website kindly read disclaimer