Banks' credit exposure to NBFCs grew by 21.5% in Nov 2023: CareEdge

Banks’ credit exposure to NBFC: The credit exposure of banks to Non-Banking Financial Companies (NBFCs) stood at Rs 14.9 lakh crore in November 2023, indicating a 21.5 per cent growth a year ago, a tad slower than the rate witnessed in October 2023 and the approximately 30 per cent average growth for the prior 12 months, a report by CareEdge stated on Thursday.

Furthermore, the proportion of NBFC exposure to aggregate credit has risen from 9.5 per cent in November 2022 to 9.6 per cent in November 2023. On a month-on-month (m-o-m) basis, the amount rose by 1.2 per cent.

Meanwhile, the Mutual Fund (MF) debt exposure to NBFCs, including Commercial Papers (CPs) and Corporate Debt, witnessed an increase of 11.5 per cent to 1.5 lakh crore in November 2023, while declining sequentially by 1.6 per cent from October 2023.

According to CareEdge, large NBFCs have focused on the capital market, while mid-sized and smaller NBFCs continued their reliance on the banking system as their primary source of funding. However, given the general credit risk aversion of MFs, the exposure to NBFCs, particularly those rated below the highest levels, is not expected to witness significant growth.

Consequently, the aggregate dependence of mid-sized NBFCs on the banking sector for funding is likely to remain high.

Compared to February 2018 numbers, absolute bank lending to NBFCs has jumped to around 3.8x, meanwhile, MF exposure has reduced by 32.5 per cent over the last five years due to risk aversion by mutual fund managers. Interestingly, MF exposure to NBFCs as a share of Debt Assets Under Management (AuM) has reduced from nearly 20 per cent in the later part of 2018 to around 11 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 close to 9.6 per cent in November 2023.