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Synopsis

• The credit exposure of banks to NBFCs stood at Rs 15.5 lakh crore in March 2024, indicating a 15.3% y-o-y growth that is approximately half of the growth rate reported in March 2023. This growth is after HDFC’s exposures being reclassified after its merger with HDFC Bank. On a month-on-month (m-o-m) basis, the amount rose by 2.2%. However, the proportion of NBFC exposure in relation to aggregate credit has reduced from 9.7% in March 2023 to 9.4% in March 2024. This can be attributed to the RBI's increasing risk weights and rising capital market borrowings.

• Meanwhile, the Mutual Fund (MF) debt exposure to NBFCs, including Commercial Papers (CPs) and Corporate Debt, reached Rs. 1.90 lakh crore in March 2024 witnessing an increase of 29.9% y-o-y and 2.2% sequentially, with CPs remaining above the one lakh crore mark for four consecutive months. Meanwhile, given the general credit risk aversion of MFs, the exposure to NBFCs, particularly those rated below the highest levels, is not expected to witness significant traction. Consequently, the aggregate dependence of mid-sized NBFCs on the banking sector for funding is likely to remain high.

• Highlighting the relative size of their exposure to NBFCs, MFs' debt exposure to NBFCs rose to 14.76% as a percentage of “Banks’ advances to NBFCs” in March 2024 from 12.07% in March 2023, and sequentially from 12.58% in February 2024.

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 securitisation route (direct assignment & pass-through certificates) and Treasury investments made by banks in the NBFCs’ capital market issuances. Liquidity availed by NBFCs including HFCs through the securitisation route was approximately Rs 1.94 lakh crore for the twelve months ending March 2024.

Figure 2: NBFC Debt Sources (Rs lakh crore)

Compared to February 2018 numbers, absolute bank lending to NBFCs has jumped to around 4x. Meanwhile, MF exposure has reduced by 17.9% over six years due to risk aversion by mutual fund managers. Interestingly, MF exposure to NBFCs as a share of Debt Assets Under Management (AuM) has reduced from nearly 20% in the latter part of 2018 to around 12% by March 2024. On the other hand, the share of banks’ advances to NBFCs as a share of aggregate advances doubled from around 4.5% in February 2018 to 9.4% in March 2024.

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

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