Banks' bilateral exposure to financial system at 46.5%: RBI

Banks lending to and borrowing from all other entities in the financial system stood at 46.5 per cent of total lending and borrowings in the financial system, as on September 2018, RBI report showed.

Financial institutions establish links with other financial institutions for efficiency gains and risk diversification, but these same links lead to risk transmission in case of a crisis, RBI said in its Financial Stability Report released Monday.

The total outstanding bilateral exposures among the entities in the financial system increased to Rs 32.4 trillion as on September-end 2018, a year-on-year increase of 13.1 per cent, from Rs 28.7 trillion as on September-end 2017.

"As on September-end 2018, banks continue to be the dominant players accounting for nearly 46.5 per cent of the financial systems bilateral exposure," RBI report showed.

Share of asset management companiesmutual funds (AMC-MFs), non-banking finance companies (NBFCs) and housing finance companies (HFCs) stood at 13.7 per cent, 12.5 per cent and 9.4 per cent respectively, as on September-end 2018 and has been steadily increasing for the last few quarters, it showed.

"This indicates their increasing interlinkages with the financial system," the report said.

It, however, said there is a decline in AMC-MFs share in the second quarter of FY19 as they have reduced their lending to NBFCs and HFCs.

In terms of inter-sectoral exposures, AMC-MFs followed by the insurance companies were the biggest fund providers in the system, while the NBFCs followed by the HFCs and banks were the biggest receiver of funds.

AMC-MFs were the largest net providers of funds to the financial system.

Their gross receivables were around Rs 8.35 lakh crore (around 36.5 per cent of their average asset under management as on September 2018), and their gross payables were around Rs 50,000 crore in September 2018.

AMC-MFs were quite active in the money markets (particularly commercial paper (CP) and certificate of deposits (CD) markets) with about 47 per cent of their receivables being short-term in nature.

NBFCs were the largest net borrowers of funds from the financial system with gross payables of around Rs 7.46 lakh crore and gross receivables of around Rs 56,000 crore as at September-end 2018.