Overall bank exposure to NBFCs moderates, but remain primary source

Overall bank exposure to NBFCs as share of total bank credit declined in 2023-24, which bodes well for overall financial stability, according to the Reserve Bank of India

Due to increase in risk weight on bank credit to NBFCs, there has been some moderation in bank borrowings by NBFCs. However, bank borrowings remain the primary source of funds for NBFCs. Apart from lending directly to NBFCs, banks also subscribe to debentures and CPs issued by NBFCs. With decline in subscription to debentures by banks, overall banks’ exposure as a share of NBFCs’ borrowings moderated from 43.1 per cent at end-March 2023 to 42.7 per cent at end-March 2024. Overall bank exposure to NBFCs as share of total bank credit also declined in 2023-24. According to the Reserve Bank of India, the reduction in NBFCs’ reliance on banks for funds bodes well for overall financial stability.