NBFC Funding Trends

Highlights of CareEdge BFSI Research on NBFC debt funding report in Feb 2024:

Banks’ credit exposure to NBFCs stood at `15.2 trillion in December 2023, a 15.1% yoy growth, much slower than the rate witnessed in November 2023. Additionally, the growth rate of advances to NBFCs has fallen below the overall bank credit growth, which was last seen in March 2022. The proportion of NBFC exposure in relation to aggregate credit changed from 9.9% in December 2022 to 9.5% in December 2023.

Mutual Fund (MF) debt exposure to NBFCs, including commercial papers (CPs) and corporate debt, reached `1.87 trillion in December 2023, a 30.8% yoy increase, with CPs crossing the `1 trillion mark last seen in August 2023. 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 traction. Consequently, the aggregate dependence of mid-sized NBFCs on banks for funding is likely to remain high.

MFs’ debt exposure to NBFCs rose to 14.2% as a percentage of banks’ advances to NBFCs in December 2023 from 11.3% in December 2022.

Compared to February 2018, absolute bank lending to NBFCs has jumped to around 3.9X, meanwhile, MF exposure has reduced by 19.1% over close to 6 years due to risk aversion by MF managers. Interestingly, MF exposure to NBFCs as a share of Debt Assets Under Management (AuM) has declined from nearly 20% in the later part of 2018 to around 14%.

NBFCs owed close to 57% in Q2FY24 to banks followed by 18.6% (17.3% in FY23) to MFs and 16.6% (17.6% in FY22) to insurance companies. The share of MFs and Insurance companies has been broadly declining for several quarters but has held steady for the last couple of quarters.

I nves t ment i n c o r por a t e debt of NBFCs i ncreased by 25.1% yoy and 30.6% mom to `0.83 trillion in December 2023. Meanwhile, the share of total corporate debt to NBFCs increased from 4% in December 2022 to 4.6% in December 2023.