NBFCs Moved Back Towards Bank Borrowings In September, Shows RBI Data

As the debt markets turned volatile, non-bank lenders made a beeline back to banks to meet their funding needs, suggests data released by the Reserve Bank of India. Non banking financial companies have been borrowing heavily using market instruments, but with rates rising and risk aversion seeping in, good ol' bank lines of credit came in handy.

The RBI's sectoral credit data for the month of September shows that incremental credit by banks to NBFCs rose by Rs 56,500 crore, the sharpest month-on-month growth this fiscal year.

Bank credit to the NBFC sector stood at Rs 5.46 lakh crore for September 2018. Among all sectors that banks lent to, NBFCs continued to remain the fastest growing segment.

Liquid mutual funds, significant investors in debt securities issued by NBFCs, saw heavy redemptions after the IL&FS crisis, prompting NBFCs to fall back on bank credit for their funding requirements, explained Rajiv Anand, executive director at Axis Bank.

Most NBFCs have lines of credit with banks, which they can draw upon in situations of tight liquidity. To be sure, these lines of credit may not be enough to tide over an extended period of tight liquidity conditions in the debt markets.

Soumya Kanti Ghosh, chief economic adviser at State Bank of India also noted that NBFCs with good ratings appear to have used existing lines of credit from banks. This, in turn, will help ease concerns about asset-mismatches although it may hurt lending margins, Ghosh said.

On a year-on-year basis, bank credit growth to NBFCs remained strong at 41.5 percent in September compared to 43.9 percent in August.

Broad Based Credit Growth

The RBI data shows that overall credit disbursement by scheduled commercial banks grew by 11.3 percent year-on-year in September 2018.

Credit given to the agricultural sector grew at 5.8 percent.

Credit to industry saw a growth of 2.3 percent, led by a 2.9 percent disbursement in credit to large industries. Medium sized firms saw a 3.3 percent increase in bank credit but micro and small enterprises saw a marginal decline of 1.4 percent year-on-year.

Though personal loans grew by 15.1 percent, loan growth in the consumer durables segment witnessed a sharp contraction of 81.9 percent in September 2018. Consumer durables, however, are only a small share of total personal advances.

Housing loans rose by a healthy 15 percent over last year.