Synopsis:
- The credit exposure of banks to Non-Banking Financial Companies (NBFCs) stood at Rs 14.2 lakh crore (pre- HDFC merger number) in September 2023, indicating a 26.3% year-on-year (y-o-y) growth. This expansion is indicative of the robust progress observed in NBFCs during the post-pandemic period. Further more, the proportion of NBFC exposure in relation to aggregate credit has risen from 8.9% in September 2022 to 9.4% in September 2023. On a month-on-month (m-o-m) basis, the amount rose by 2.6%.
- Meanwhile, the Mutual Fund (MF) debt exposure to NBFCs, including Commercial Papers (CPs) and Corporate Debt, witnessed an increase of 58.4% to 1.77 lakh crore in September 2023 with CPs remaining around the one lakh crore threshold. Large NBFCs focused on the capital market, while mid-sized and smaller NBFCs continued their reliance on the banking system as their primary source of funding. However, 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 growth. Hence, the aggregate dependence of mid-sized NBFCs on the banking sector for funding is likely to remain high while larger NBFCs will continue to move towards the capital markets.
- Highlighting the relative size of their exposure to NBFCs, MFs’ debt exposure to NBFCs touched 12.5% as a percentage of “Banks’ advances to NBFCs” in September 2023 from 9.9% in September 2022 and 12.8% in September 2023.
