Banks' lending to NBFCs soars 35% to Rs 14.2 trn in June: Care ratings

Banks' lending to non-banking finance companies (NBFCs) rose by 35.1 per cent to Rs 14.2 trn in June, a report said.

Credit exposure of banks to NBFCs rose by a robust 35.1 per cent on-year to Rs 14.2 trn in June, indicating non-banking finance firms' decreased reliance on international borrowings. This also pushed up NBFCs' share in overall credit from 8.5 per cent in June 2022 to 9.9 per cent in the reporting month, according to Sanjay Agarwal, a senior director with Care Ratings.

However, the report noted that the merger of HDFC with HDFC Bank, effective July 1, will lead to a reduction in the share and also the exposure of banks to NBFCs, as HDFC's bank borrowings will undergo a temporary reclassification, resulting in a shift of exposure to HDFC Bank.

Meanwhile, mutual funds' debt exposure to NBFCs, including through commercial papers (CPs) and corporate debt, also increased 14.5 per cent to Rs 1.62 trn in June, it said.

According to the report, MF exposure to NBFCs as a share of debt asset under management has remained broadly constant hovering at around 10 per cent. On the other hand, the share of banks' advances to NBFCs as a share of aggregate advances has doubled from around 4.5 per cent in February 2018 to nearly 10 per cent in June, indicating the reliance of NBFCs on bank lending.

The report also said that bank credit to NBFCs has been consistently moving up since the second half of FY22, coinciding with the phased reopening of the economy since the Covid pandemic. This growth momentum further accelerated in FY23 and in the first quarter of FY24, which can primarily be ascribed to NBFCs' asset base.