Bank lending to NBFCs halves to Rs 15.5 L crore

However, lower-rated NBFCs are expected to seek bank funds than mutual funds for debt raising, the report said.
Bank lending to NBFCs halves to Rs 15.5 L crore

MUMBAI: After the November 2023 Reserve Bank direction mandating banks to increase their risk-weighted capital by 25 percentage points for their exposure to non-bank lenders, banks’ credit growth exposure rate to these shadow banks

almost halved to 15.3% as more and more NBFCs are depending on mutual funds to raise debt, which on an annualised basis rose to 14.76% in March 2024 from 12% a year ago.

Even as better rated NBFCs are moving away from banks for funds to MFs, the credit exposure of banks to NBFCs rose 15.3% to R15.5 lakh crore in March 2024, which is only half of the growth rate reported in March 2023 when it was 25-30%, Care Ratings said in a weekend note. The average expansion in banks’ advances to NBFCs has also come down to around 19% in March 2024, from 23-25% average growth in the previous 12 months.

Additionally, the growth rate of advances to NBFCs has also been below the overall bank credit growth since December 2023 primarily due to the RBI increasing risk weights and elevated capital market borrowings. Another reason is the RBI increasing the risk weights and rising capital market borrowings, the agency said.

Due to these reasons, the proportion of NBFCs’ exposure in relation to aggregate credit has also inched down from 9.7% in March 2023 to 9.4% in March 2024.

On the other hand, MFs’ debt exposure to NBFCs, including commercial papers (CPs) and corporate debt, reached R1.90 lakh crore in March 2024, an increase of 29.9% on-year and 2.2% sequentially, with CPs remaining above the R1 lakh crore-mark for the fourth consecutive month.

However, lower-rated NBFCs are expected to seek bank funds than mutual funds for debt raising, the report said.

The figures do not include liquidity made available to NBFCs by banks via the securitisation route which include direct assignments and pass-through certificates and also the treasury investments made by banks in NBFCs debt issues.

Liquidity availed of by NBFCs including housing finance companies through the securitisation route was around R1.94 lakh crore for the 12 months ending March 2024.

But the numbers are still much higher compared February 2018 (NBFCs’ trouble began with the DHFL blowout in late 2017 followed by the bankruptcy of ILFS in October 2018) numbers, as in absolute terms lending to NBFCs has jumped 4x even MFs’ exposure has come down by 17.9% over these six years due to their risk aversion.

Also, interestingly, MFs’ exposure to NBFCs as a share of debt assets under management has come down 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.

The credit extended by banks to NBFCs has exhibited a consistent upward trend for close to six years and continued its acceleration along with the phased reopening of economies after the Covid pandemic. This trend can be primarily ascribed to the expansion of their debt assets.

Meanwhile, MF’s investment in NBFC debt issues rose 27.9% Year-on-year to R0.86 lakh crore in March 2024 and the share of total corporate debt to NBFCs rose to 4.7% during this period from 4.4%.

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