Bank credit to NBFCs picks up in February

Bank credit to non-banking finance companies (NBFCs) has picked up for the first time during FY21 in February, indicating a positive impact of Mint Road's liquidity measures and less risk aversion at banks.Growth in bank credit to NBFCs had been continuously falling in FY21 after peaking in April 2020 as the economic uncertainties of Covid-19 made banks risk-averse even as they scrambled to provide for possible defaults due to the crisis.As a result, after clocking a brisk 30.3 per cent year-on-year growth as of April 2020, lending to NBFCs by banks dropped steadily to 24.1 per cent in July 2020, 9.2 per cent in October 2020 and 6.6 per cent in January 2021. In February, this growth rate has improved to 9.2 per cent indicating easier funding conditions for NBFCs, though it is lower than 24.6 per cent reported a year earlier.“Overall exposure of the banks to NBFCs has been increasing. The commercial papers (CPs) and corporate debt (CDs) deployed together in NBFCs stood at similar levels witnessed in February 2020. The total monthly funds raised by NBFCs from primary market declined in February 2021 as compared with January 2021 and March 2020, as banks became the major source of financing needs for NBFCs,” CARE Ratings said in a note on Friday.The impact of Covid was a second blow to NBFCs just about recovering from tight liquidity conditions after the collapse of IL&FS in September 2018. Bank credit to NBFCs is up 64 per cent and in absolute terms at Rs 9 lakh crore in February 2021 from Rs 5.5 lakh crore in September 2018.Even as bank credit availability has gone up, the debt exposure of mutual funds to NBFCs has declined from Rs 1.78 lakh crore in January 2021 to Rs 1.62 lakh crore in February 2021 and is at the same levels witnessed in February 2020.The exposure of mutual funds into commercial papers (CPs) of NBFC is down at 4.3 per cent of the debt assets under management, from 9.5 per cent in September 2018 when IL&FS imploded. However, it is still higher than the level of 4 per cent in March 2020.Scars of risk aversion to NBFCs post-IL&FS crisis remain as outstanding investments in CPs of NBFCs fell by Rs 20,000 crore to Rs 70,000 crore in February 2021 from Rs 90,000 crore in January 2021.Investments into corporate bonds of NBFCs are also lower from a year ago at Rs 90,000 crore in February 2021 down from Rs 94,000 crore in March 2020 and lowest since Rs 99,000 crore reported in September 2018.

from Economic Times https://ift.tt/325zUlF
via IFTTT