Banks' Lending To NBFCs Surges 35% To Reach Rs 14.2 Lakh Crore In June: Report
A recent report highlights that credit extended by banks to non-banking finance companies (NBFCs) has witnessed a significant surge, rising by an impressive 35.1 per cent to reach Rs 14.2 lakh crore in the month of June. This growth indicates a decline in non-banking finance firms' reliance on international borrowing, resulting in a noteworthy boost in the share of NBFCs in the overall credit landscape. According to Sanjay Agarwal, a senior director at Care Ratings, this growth has propelled NBFCs' share from 8.5 per cent in June 2022 to 9.9 per cent in the current reporting month.
However, the report highlights that the recent merger of HDFC with HDFC Bank, effective from July 1, will lead to a reduction in the share and exposure of banks to NBFCs. This is due to the reclassification of HDFC's bank borrowings, temporarily shifting exposure to HDFC Bank. Meanwhile, the report also indicates that mutual funds' debt exposure to NBFCs, including through commercial papers (CPs) and corporate debt, has grown by 14.5 per cent to reach Rs 1.62 lakh crore in June.
The report sheds light on the consistency in mutual funds' exposure to NBFCs as a share of debt assets under management, remaining at approximately 10 per cent. Conversely, the share of banks' advances to NBFCs as a portion of aggregate advances has doubled, escalating from around 4.5 per cent in February 2018 to nearly 10 per cent in June. This underscores the growing reliance of NBFCs on bank lending.
Furthermore, the report highlights that bank credit extended to NBFCs has been on a consistent upward trajectory since the second half of FY22, aligning with the phased reopening of the economy post the Covid pandemic. This growth momentum further accelerated in FY23 and the initial quarter of FY24, primarily attributed to the expanding asset base of NBFCs.
