Synopsis:
- The credit exposure of banks to Non-Banking Financial Companies (NBFCs) stood at Rs 13.8 lakh crore in August 2023, indicating a 25.8% year-on-year (y-o-y) growth. This expansion is indicative of the robust progress observed in NBFCs during the post-pandemic period. Furthermore, the proportion of NBFC exposure in relation to aggregate credit has risen from 8.8% in August 2022 to 9.3% in August 2023. On a month-on-month (m-o-m) basis, the amount rose by 0.6%.
- Meanwhile, the Mutual Fund (MF) debt exposure to NBFCs, including Commercial Papers (CPs) and Corporate Debt, witnessed an increase of 35.8% to 1.77 lakh crore in August 2023 with CPs remaining above the one lakh crore threshold last seen in August 2019. Based on discussions with market participants, the trend is likely to continue. 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. Consequently, 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 12.8% as a percentage of “Banks’ advances to NBFCs” in August 2023 from 11.8% in August 2022 and 13.1% in July 2023.
