Banks’ lending to NBFCs jumps 35% to ₹14.2 lakh cr. in June: Care Ratings report

However, the report noted that the merger of HDFC with HDFC Bank, effective July 1, will lead to a reduction in the share and also the exposure of banks to NBFCs, as HDFC's bank borrowings will undergo a temporary reclassification, resulting in a shift of exposure to HDFC Bank

Banks' lending to non-banking finance companies (NBFCs) rose by 35.1% to ₹14.2 lakh crore in June, a report said.

Credit exposure of banks to NBFCs rose by a robust 35.1% year-on-year to ₹14.2 lakh crore in June, indicating non-banking finance firms' decreased reliance on international borrowings. This also pushed up NBFCs' share in overall credit from 8.5% in June 2022 to 9.9% in the reporting month, according to Sanjay Agarwal, a senior director with Care Ratings.

However, the report noted that the merger of HDFC with HDFC Bank, effective July 1, will lead to a reduction in the share and also the exposure of banks to NBFCs, as HDFC's bank borrowings will undergo a temporary reclassification, resulting in a shift of exposure to HDFC Bank.

Meanwhile, mutual funds' debt exposure to NBFCs, including through commercial papers (CPs) and corporate debt, also increased 14.5% to ₹1.62 lakh crore in June, it said.

According to the report, MF exposure to NBFCs as a share of debt asset under management has remained broadly constant hovering at about 10%. On the other hand, the share of banks' advances to NBFCs as a share of aggregate advances has doubled from about 4.5% in February 2018 to almost 10% in June, indicating the reliance of NBFCs on bank lending.

The report also said that bank credit to NBFCs has been consistently moving up since the second half of FY22, coinciding with the phased reopening of the economy since the Covid pandemic. This growth momentum further accelerated in FY23 and in the first quarter of FY24, which can primarily be ascribed to NBFCs' asset base.