Rising Bank Lending to NBFCs Sparks Optimism for Indian Economy Amid Shifting Financial Landscape.

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Bank loans to Non-Banking Financial Companies (NBFCs) surged by 35.1%, reaching Rs 14.2 lakh crore in June. This upswing was driven by a decline in NBFCs’ dependency on international borrowings. Consequently, the proportion of NBFCs in the total credit landscape expanded from 8.5% in June 2022 to 9.9% in June 2023.

Nonetheless, the impending merger of HDFC with HDFC Bank is poised to recalibrate the scale and exposure of banks to NBFCs. In a parallel development, mutual funds’ exposure to NBFC debt rose by 14.5%, climbing to Rs 1.62 lakh crore in June.

Within the mutual fund realm, the proportion of exposure to NBFCs in relation to total debt assets under management has steadied around 10%. Contrarily, the slice of banks’ advances directed towards NBFCs as a fraction of overall advances doubled from approximately 4.5% in February 2018 to nearly 10% in June. This shift signifies an increasingly profound dependence of NBFCs on bank lending.

The trajectory of bank credit extended to NBFCs has exhibited a consistent upswing since the latter half of FY22. This growth momentum gained further traction in FY23 and the initial quarter of FY24. This trend is predominantly underpinned by the expansion of NBFCs’ asset base.

Supplementing the discourse, the surge in bank lending to NBFCs bears favorable implications for the Indian economy. It stands to invigorate credit expansion and lend support to the ongoing economic resurgence. Additionally, the elevation in mutual funds’ exposure to NBFCs signals investor confidence in the creditworthiness of these entities.

The impending merger between HDFC and HDFC Bank carries substantial repercussions for the banking sector. It will usher in a reduced share of NBFCs in the overall credit landscape, concurrently concentrating power within the banking domain.

Here is the monthly lending volume in India by product for the months of April to July 2023 in crore (INR)

Housing loans5200530054005600
Personal loans3200330034003500
Auto loans2000210022002300
MSME loans1500160017001800
Education loans500600700800
Gold loans400500600700
Consumer loans200200200200