Banks slowly warming up to NBFC lending – The Economic Times

Clipped from: https://economictimes.indiatimes.com/industry/banking/finance/banks-slowly-warming-up-to-nbfc-lending/articleshow/82018173.cms?utm_source=ETTopNews&utm_medium=HPTN&utm_campaign=AL1&utm_content=23Synopsis

​​The commercial papers (CPs) and corporate debt (CDs) deployed together in NBFCs stood at similar levels witnessed in February 2020.

Bank credit to non banking finance companies (NBFCs) has picked up for the first time this fiscal in February indicating a postive impact of Reserve Bank of India‘s (RBI) liquidity measures and ease in risk aversion by banks. Growth in bank credit to NBFCs has been continously falling this fiscal after peaking in April 2020 as the economic uncertainties of Covid 19 made banks risk averse even as they scrambled to provide for possible defaults due to the crisis.

As a result, after clocking a brisk 30.3% year on year growth as of April 2020, lending to NBFCs by banks dropped steadily to 24.1% in July 2020, 9.2% in October 2020 and and 6.6% in January 2021. In February 2021, this growth rate has improved to 9.2% indicating easier funding conditions for NBFCs, though it is lower than the 24.6% reported a year earlier. “Overall exposure of the banks to NBFCs has been increasing.

The commercial papers (CPs) and corporate debt (CDs) deployed together in NBFCs stood at similar levels witnessed in February 2020. The total monthly funds raised by NBFCs from primary market declined in February 2021 as compared with January 2021 and March 2020, as banks became the major source of financing needs for NBFCs,” Care Ratings said in a note on Friday. The impact of Covid 19 was a second blow to NBFCs which has just about recovered from tight liquidity conditions after the collapse of IL&FS in September 2018.

Bank credit to NBFCs is still higher than that period up 64% and in absolute terms at 9 lakh crore in February 2021 from Rs 5.5 lakh crore in September 2018. However, though bank availability has gone up, the debt exposure of mutual funds to NBFCs has declined from Rs.1.78 lakh crore in January 2021 to Rs.1.62 lakh crore in February 2021 and is at same levels witnessed in February 2020.

The exposure of credit from mutual funds into commercial papers (CPs) of NBFC is down at 4.3% of the debt assets under management, from 9.5% in September 2018 when IL & FS imploded, but is still higher than 4% in March 2020. Scars if risk aversion to NBFCs post IL&FS remain as outstanding investments in CPs of NBFCs fell by Rs 20,000 crore to Rs 70,000 crore in February 2021 from Rs 90,000 crore in January 2021. Investments into corporate bonds of NBFCs are also lower from a year ago at Rs 90,000 crore in February 2021 down from Rs.94,000 crore in March 2020 and lowest since Rs 99,000 crore reported in September 2018.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s