The credit exposure of banks to Non-Banking Financial Companies (NBFCs) stood at Rs 15.2 lakh crore in December 2023, indicating a 15.1% year-on-year (y-o-y) growth, much slower than the rate witnessed in
November 2023 and the approximately 27% average growth for the prior 12 months. Additionally, the growth rate of advances to NBFCs has fallen below the overall bank credit growth, which was last seen in March 2022, according to a CareEdge report.
Furthermore, the proportion of NBFC exposure in relation to aggregate credit has risen from 9.9% in December 2022 to 9.5% in December 2023. On a month-on-month (m-o-m) basis, the amount rose by 1.8%.
Meanwhile, the Mutual Fund (MF) debt exposure to NBFCs, including Commercial Papers (CPs) and Corporate Debt, reached Rs. 1.87 lakh crore in December 2023 witnessing an increase of 30.8% y-o-y and 19.9% sequentially, with CPs crossing the one lakh crore mark last seen in August 2023. 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 14.2% as a percentage of “Banks’ advances to NBFCs” in December 2023 from 11.3% in December 2022, and sequentially from 11.3% in November 2023.
Compared to February 2018 numbers, absolute bank lending to NBFCs has jumped to around 3.9x, meanwhile, MF exposure has reduced by 19.1% over close to 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 later part of 2018 to around 14%. On the other hand, the share of banks’ advances to NBFCs as a share of aggregate advances has doubled from around 4.5% in February 2018 to close to 9.5% in December 2023.
Phased rise
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-19 pandemic. This growth momentum further accelerated during FY23 and continued in H1 FY24.
Further, after the merger of HDFC Ltd with HDFC Bank, the quantum of outstanding exposure of banks to NBFCs had reduced sequentially, albeit maintaining the y-o-y growth rate which has since moved past the pre-merger level, the report said. This trend can be primarily ascribed to the expansion in the AuM of NBFCs.
The credit exposure of banks to NBFCs stood at Rs 15.2 lakh crore in December 2023, indicating a 15.1% year-on-year (y-o-y) growth, much slower than the rate witnessed in November 2023 and the approximately 27% average growth for the prior 12 months. Additionally, the growth rate of advances to NBFCs has fallen below the overall bank credit growth, which was last seen in March 2022.
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