Bank credit to NBFCs increases 10% to Rs 10.5 trn in FY22: Report

Bank credit to NBFCs grew in double digit in FY22 with outstanding bank credit to them rising by 10.4 per cent to Rs 10.5 trillion on the back of improvement in overall economic activities

Bank credit to NBFCs grew in double digit in FY22 with outstanding bank credit to them rising by 10.4 per cent to Rs 10.5 lakh crore on the back of improvement in overall economic activities and banks' renewed focus on the NBFC sector following improvement in their balance sheets, says a report.

In absolute terms, according to an analysis by Care Ratings, bank credit to non-banking financial companies (NBFCs) expanded by Rs 99,000 crore in FY22, from FY21.

The number does not include liquidity given by banks to them through securitization route (direct assignment and pass-through certificates) and also banks' investments in NBFCs' debt instruments.

Meanwhile, mutual funds' debt exposure through commercial papers (CPs) and corporate bonds, to NBFCs rose 14.3 per cent to Rs 1.7 lakh crore in FY22 as NBFCs issued more CPs to fund IPOs and as they shifted from long-term to short-term investments on expectation of hike in interest rates.

In absolute terms, it expanded by Rs 21,000 crore, says the report. Outstanding investments in CPs of NBFCs grew 25 per cent to Rs 73,000 crore in FY22 as the year was the best in the IPO history and NBFCs issued CPs worth Rs 15,000 crore to fund IPOs.

The percentage share of funds deployed by mutual funds in CPs of NBFCs in FY22 stood at 4.4 per cent of debt assets under management (AUMs), up from 3.6 per cent in FY21.

Banks credit exposure to NBFCs fluctuated around Rs 9 lakh crore-mark for the better part of FY22 and crossed Rs 10 lakh crore threshold in December 2021. And from there, it continued its upward trajectory and crossed Rs 10.5 lakh crore in March 2022 as capital market rates hardened and NBFCs turned to avail comparatively cheaper bank loans.