MFS halve allotment to NBFCS

MUMBAI: India’s debt mutual funds have cut their exposure to non-banking financial companies (NBFCS) to almost half since 2018, as underlying asset quality concerns and shaky repayment abilities drove fund managers to sectors perceived as less risky, data from the Securities and Exchange Board of India (Sebi) showed.

Over the past year, NBFCS have faced severe asset liability mismatch with several struggling to raise short-term loans from lenders, including mutual funds.

In June last year, Dewan Housing

Finance Ltd (DHFL), one of India’s best-known mortgage lenders, defaulted on a ₹225 crore payment of unsecured commercial paper payment which was due on June 25. In September Altico Capital India Ltd, a lender to real estate companies defaulted on interest payments worth ₹19.9 crore, highlighting the rising stress in India’s shadow banks.

According to the latest data from Sebi, mutual fund investments in debt instruments of NBFCS was at ₹1.37 lakh crore in June, down 48% from ₹2.64 lakh crore in July 2018.

In June 2018, MFS’ exposure to NBFCS was at ₹2.33 lakh crore. Accordingly, the percentage share of total funds deployed by mutual funds into NBFCS also declined to 9.2% in June from 19% in July 2018.

Investment in commercial papers of NBFCS had been on a consistent decline every month till May but have risen marginally in June 2020 to ₹0.54 lakh crore from ₹0.44 lakh crore in March 2020.

Post September 2018, after the liquidity crisis in the NBFC space, MFS withdrew over 50% of their investments from this category.

The percentage share of funds deployed by MFS in corporate debt paper of NBFCS in June moderated to ₹0.84 lakh crore from ₹0.94 lakh crore in March.