Gross bank credit rose nearly 18% Y-o-Y to nearly Rs 129 trillion as on October 21, the Reserve Bank of India’s latest data on the credit growth showed. Loans to MSMEs and retail via NBFCs, home loans and large corporate accounted for a big chunk of the credit growth.
Personal loans rose 20.2% YoY, loans to industry grew nearly 14% and loans to the services sector increased nearly 23%.
The credit growth is likely to continue to be in double digits in FY23, led by the growth in personal loans and working capital loans to corporates, say analysts. “The medium-term prospects (credit growth) look promising with diminished corporate stress and a substantial buffer for provisions. However, inflation remains a key risk,” CareEdge said in a report. “Even as the RBI has managed domestic inflation to some extent, global inflation has remained high despite hawkish policies. This may lead to demand issues globally causing second-order effects in India.”
Bank loans to non-banking financial companies (NBFCs) rose 38% year-on-year as of October 21, as NBFCs continued to find banks’ interest rates more favorable than the rates offered by the capital market, RBI data showed.
“After the liquidity crisis, the capital market has cut its exposure to NBFCs significantly and its has continued to do so during Covid, too. Since the capital market is not taking exposure to NBFCs, banks are stepping up,” Jindal Haria, financial institutions director, India Ratings, said. “Also, banks want to ramp-up their co-lending and balance-sheet lending. They are trying to forge as many relationships with NBFCs as possible,” he added.
Total bank loans to NBFCs stood at nearly Rs 12.6 trillion as on October 21.
Among specific NBFCs, loans to housing finance companies rose 20.3% and loans to public finance institutions grew nearly 86%, the latest RBI data on sectoral deployment of credit showed. In September, loans to non-bank lenders had risen nearly 31% YoY to Rs 12 trillion.
The steady rise in bank loans to NBFCs comes when corporate bond yields have shot up sharply on the expectation that the RBI will hike the repo rate further from current levels.
With various economists expecting the RBI to hike the repo rate by a further 35 basis points in its December monetary policy, borrowing costs of NBFCs will only rise, with many of them continuing to approach banks for their funding needs. In such a scenario, the net interest margin trajectory of these non-bank lenders will be a key monitorable, as a majority of NBFC loans are marked to the MCLR and these loans are yet to be reset, say analysts.