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Bank lending to NBFCs jumps 40% as MFs cut back exposure

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With the NBFC sector in a state of deep turmoil for over a year now due to liquidity crunch that ensued following the collapse of Infrastructure Leasing and Financial Services (IL-FS), and with mutual funds largely holding back on their exposure to these lenders, banks seem to have stepped in to fund the majority of their financing requirements. Between September 2018 and 2019, banks have lent Rs 1.9 lakh crore to the non-bank sector, growing their portfolios by nearly 40 per cent, as per the latest data of RBI.

These banks include all scheduled private, public, foreign, foreign and rural banks.

The loans extended in the same period between 2017 and 2018 wereRs 1.43 lakh crore, registering a growth of 43 per cent.

Incremental growth on credit sanctioning by banks to NBFCs come at a time when mutual funds, which were a major funding source for the non-banks, reduced their exposures to these companies after various financial irregularities. As per data sourced by ET from leading brokerage ICICI Securities, mutual funds’ debt exposure through corporate debt and commercial papers (CP) stood at Rs 3,75,500 crore in Aug 2019, down 11 per cent from Rs 4,21,600 crore as on September 2018. “Within this, their CP exposures are down 36 per cent while the corporate debt exposure is up 14 per cent over the same period,” said Abhijit Tibrewal, Analyst, ICICI Securities.

“It could have played out both ways.

Either mutual funds could have chosen to reduce their exposure or the NBFC/HFC itself could have consciously reduced its CP exposure.” Additionally, mutual fund exposure to debt (corporate debt and CP) of Housing Finance Companies was at Rs 1.07 lakh crore in August 2019 and is down 36 per cent from Rs 1.67 lakh crore as on September 2018, the data showed.

Interestingly, in the first five months of the ongoing fiscal, from April to August, banks have grown their books by 6.1 per cent against degrowth of 1.3 per cent in the same time last year, RBI data showed. “Credit to the NBFC sector from banks has expanded by Rs 39,200 crore in the current fiscal as against degrowth last year,” said Soumya Kanti Ghosh, chief Economist State Bank of India.

“Clearly, this indicates that the news of credit freeze to the NBFC sector is untrue.” Even as most NBFCs have seen declining credit growth owing to consumption slowdown in retail and SME sectors, banks have been the major funding source for most of these non-banks despite elevated credit costs.




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