Mutual Funds Reduce Exposure To NBFC Debt, Banks Go The Other Way
Banks seem increasingly keen to lend to NBFCs even as mutual funds cut such exposure.
Banks' outstanding credit to non-bank financial companies grew 27.4% year-on-year, or by Rs 2.5 lakh crore, to Rs 11.6 lakh crore in July, according to data published by the Indian central bank and the Association of Mutual Funds in India.
The expansion, CareEdge analysts said in a Sept. 5 report, was on a low-base effect and shifting of NBFC borrowing toward the banking system because of attractive borrowing costs.
Mutual funds, however, have trimmed their debt exposure to NBFCs by 40% over the year earlier to Rs 1.13 lakh crore in July. The overall assets under management of debt funds has also declined from Rs 15.3 lakh crore in July 2021 to Rs 12.6 lakh crore in July 2022.
Outstanding investments in commercial papers of NBFCs saw a drop of 43.1% on a yearly basis in July—an absolute reduction of Rs 0.42 lakh crore.
The reduced allure of debt to mutual funds can be attributed to fixed-term plans losing popularity combined with outflows from liquid funds, CareEdge said.
The percentage share of funds deployed by mutual funds in commercial papers on NBFCs has also reduced from 5.7% in July 2021 to 4.04% in July 2022.
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