In a first for FY18, banks lending to NBFCs rises

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Published: October 21, 2017 5:08:45 AM

Outstanding bank loans to NBFCs as on August 18, 2017, stood at Rs 3.4 lakh crore, against Rs 3.39 lakh crore in August 2016, Reserve Bank of India data show.

banks lending, banks lending to nbfs, non-banking financial companies, bank credit, Reserve Bank of India, RBI, RBI on NBFs, commercial papers, initial public offerings, NBFC CP, B Sriram, loan bookAs demand for capital typically sees a spurt in the run-up to IPOs, NBFCs also try to diversify their sources of fund-raising to meet the demand. (Image: Reuters)

Banks’ lending to non-banking financial companies (NBFCs) grew 0.3% year-on-year (y-o-y) in August. This is for the first time since the beginning of FY18 that bank credit to the sector has recorded positive growth on an annualised basis. Outstanding bank loans to NBFCs as on August 18, 2017, stood at Rs 3.4 lakh crore, against Rs 3.39 lakh crore in August 2016, Reserve Bank of India data show. The last time bank credit to NBFCs grew at a positive rate was in March, when credit grew 11% y-o-y to Rs 3.91 lakh crore. NBFCs returned to banks in August as yields on commercial papers (CPs) issued by them hardened during the month ahead of a string of initial public offerings (IPOs) in September.

As demand for capital typically sees a spurt in the run-up to IPOs, NBFCs also try to diversify their sources of fund-raising to meet the demand. FE had reported in its September 8 edition that CP yields of leading NBFCs rose between 5 and 15 basis points between August and September. The short-term crunch in liquidity, coupled with the fact that mutual funds have investment limits in NBFC papers to the tune of 25% of their assets under management, led to some hardening in NBFC CP yields.

NBFCs then turned to banks on hopes of accessing relatively cheaper funds. For many quarters now, banks have been losing better-rated companies, including NBFCs, to the money markets as yields were cheaper there. Instead of lending to companies directly, banks have chosen to invest in their debt securities.

Speaking after State Bank of India’s June quarter results, managing director B Sriram had said that between June 2016 and June 2017, around Rs 40,000 crore had moved from the bank’s loan book to the markets. “A large portion of it — about 70% of it — is in CPs, or commercial papers. These commercial papers swing between the loan book and the markets, depending on the price, availability, etc,” he had said.

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