"The overall composition of NBFCs in banks' credit exposure increased from 6.9 per cent in September 2018 to 8.8 per cent in June 2020," the rating agency said in the report on Friday.
Amid continuing calls for more bank loans to non-banking lenders, the latest data showed that banks have already been lending more to them increasing their overall exposure to NBFCs by 190 basis points to 8.8 per cent between September 2018 and June 2020, according to a report by CARE Rating.
In absolute terms, banks’ outstanding to NBFCs saw a huge growth of 47.1 per cent to Rs 7.99 lakh crore in June 2020, from Rs 5.47 lakh crore in September 2018, according to the data collated by the rating agency.
However, NBFCs’ borrowings from mutual funds have been declining, except in May 2020 when it increased on an annual basis, according to the report.
NBFCs have been down in the dumps since the industry major IL&FS went belly up in September 2018, forcing banks to close the liquidity tap on them to prevent a contagion on the system. While the liquidity crisis continued, the Reserve Bank of India has since February announced a slew of measures to ensure adequate liquidity in the once-booming credit market.
“The overall composition of NBFCs in banks’ credit exposure increased from 6.9 per cent in September 2018 to 8.8 per cent in June 2020,” the rating agency said in the report on Friday.
The data also showed that NBFCs have been banking more on bank lending than other debt from capital markets for funds since September 2018.
However, banks’ outstanding advances to NBFCs declined marginally to Rs 7.99 lakh crore in June 2020 as against from Rs 8.12 lakh crore in April 2020. In June 2019, it was Rs 8.41 lakh crore.
Bank lending to NBFCs declined marginally to Rs 9.36 lakh crore from Rs 9.49 lakh crore in May 2020, owing to a fall in mutual funds funding and reduction in the activity level of NBFCs, according to the report.
NBFCs’ borrowings from mutual funds continued to decline until April 2020 when it slipped to Rs 1.34 lakh crore but increased in May 2020 following the decline in yields of commercial papers (CPs) and corporate bonds and again declined to Rs 1.38 lakh crore in June 2020.
Similarly, total monthly funds raised by NBFCs from the primary market declined to Rs 30,000 crore in June 2020, from Rs 80,000 crore in March 2019 as banks became the major source of their financing needs following the NBFC crisis.
It said investments in CPs of NBFCs were also flat in June 2020 and at half level compared with the previous year. The percentage share of funds deployed by MFs in CPs of NBFCs in June declined to 3.65 per cent compared with September 2018 when it was 9.5 per cent, it added.
The report said the investments in CPs of NBFCs also remained stable at Rs 84,000 crore in June 2020 as compared to Rs 94 000 crore in March 2020 and was the lowest since September 2018. The percentage share declined to 5.6 per cent, the lowest since September 2018 and down as compared with 7.2 per cent in March 2020, it added.