MF Exposure to NBFCs’ Commercial Paper Remains 1 Trillion for 6th Straight Month
FinTech BizNews Service
Mumbai, July 11, 2024: Mutual Fund (MF) debt exposure to NBFCs, including Commercial Papers (CPs) and Corporate Debt, remained above the Rs2 lakh crore (Rs 2 Trillion) mark for the second consecutive month touching Rs. 2.09 lakh crore in May 2024, as per a report prepared by CARE Ratings.
This marks an increase of 22.0% y-o-y and 0.5% sequentially, with CPs consistently remaining above the one lakh crore mark for six consecutive months, standing at Rs 1.15 lakh crore (a level last witnessed in May 2019 i.e. nearly 5 years ago).
• The credit exposure of banks to NBFCs stood at Rs 15.6 lakh crore in May 2024, indicating a 16.0% y-o-y
growth. This growth is despite HDFC’s exposures being reclassified after its merger with HDFC Bank. Without
considering the merged entity in the base data, the growth stood at 26.0%. On a month-on-month (m-o-m)
basis, the amount rose by 0.9%. However, the proportion of NBFC exposure in relation to aggregate credit has reduced from 9.6% in May 2023 to 9.3% in May 2024.
• In May 2024, mutual funds' debt exposure to NBFCs increased to 13.3% of "Banks' advances to NBFCs," up
from 12.7% in May 2023. However, it marginally decreased from 13.4% in April 2024. Liquidity availed by NBFCs including HFCs through the securitisation route was approximately Rs 1.94 lakh crore for the twelve months ending March 2024.
As per the CARE Ratings report, compared to February 2018 numbers, absolute bank lending to NBFCs has jumped to around 4x.
Meanwhile, MF exposure has reduced by 9.5% over six years. The CP outstanding stood at Rs 1.15 lakh crore, remaining above the one lakh crore mark for six consecutive months. Furthermore, MF exposure to NBFCs as a share of Debt Assets Under Management (AuM) has reduced from nearly 20% in the latter part of 2018 to around 13% by May 2024.
On the other hand, the share of banks’ advances to NBFCs as a share of aggregate advances doubled from around 4.5% in February 2018 to 9.3% in May 2024.
The credit extended by banks to NBFCs has exhibited a consistent upward trend for close to six years and continued
its acceleration along with the phased reopening of economies after the Covid-19 pandemic. This trend can be
primarily ascribed to the expansion in the AuM of NBFCs. The credit exposure of banks to NBFCs stood at Rs 15.68
lakh crore in May 2024, indicating a 16.0% y-o-y growth. This growth is after HDFC’s exposures were reclassified
after its merger with HDFC Bank.
On a month-on-month (m-o-m) basis, the amount rose by 0.9%. Without considering the merged entity in the
base data, the growth would have been higher at 26.0%. This adjustment provides a clearer picture of the underlying growth trend. However, the proportion of NBFC exposure in relation to aggregate credit has reduced from 9.6% in May 2023 to 9.3% in May 2024. Additionally, the growth rate of advances to NBFCs has been below the overall bank credit growth since December 2023. This can be attributed to regulatory actions, base effect
(HDFC’s numbers are excluded in May 2024, but included in May 2023 data) and capital market borrowings.
The spread between domestic and US and EU g-sec yield has been broadly trending
down. In May, there was a significant surge in Certificate of Deposits issuances, increasing by 195% compared to
the previous month and doubling from the same period last year. FYTD25 reached Rs 1.2 lakh crore, marking an
81% rise y-o-y. Meanwhile, CP issuances also saw a notable increase of 59% m-o-m in May, though they showed
a slight 13% increase from last year.
However, FYTD25 CP issuances totalled Rs 2.2 lakh crore, reflecting a modest decline of 5% y-o-y. corporate bond
issuances experienced a robust 84% monthly growth in May but witnessed a significant 19% drop compared to
last year. Cumulatively for FYTD25, corporate bond issuances amounted to Rs 1.3 lakh crore, down 30% year-on-
year.
Investment in corporate debt of NBFCs increased by 19.2% y-o-y and 4.8% m-o-m to Rs.0.94 lakh crore in May 2024. Meanwhile, the share of total corporate debt to NBFCs inched up to 4.6% in May 2024 from 4.3% in May 2023. The outstanding investments in CPs of NBFCs have stayed above the Rs one lakh crore mark for six months, increasing by 24.4% y-o-y to Rs.1.15 lakh crore in May 2024. CPs (less than 90 days) rose by 20.9% y-o-y to
Rs.0.73 lakh crore in May 2024, CPs (90 days to 182 days) fell by 20.1% to Rs.0.07 lakh crore, and CPs (more than 6 months) increased by 53.8% to Rs.0.33 lakh crore in the reporting period. This increase comes against the backdrop of RBI increasing the risk weights on higher-rated NBFCs for borrowings from the banking system.
The percentage share of funds deployed by MFs in CPs as a percentage of banks’ exposure to the NBFCs stood at 7.3% in May 2024, increasing by over 50 bps y-o-y. The proportion of CPs (less than 90 days) deployed in NBFCs as a percentage of aggregate funds deployed for less than 90 days reached 8.9% in May 2024 as compared to 8.1% over a year ago period, the percentage of CPs (90 days to 182 days) fell marginally to 8.3% from 8.4% over a year ago, and CPs (greater than six months) percentage increased to 11.9% in May 2024 as compared to 9.7% over a year-ago period.
Disclaimer:
CareEdge Ratings has taken utmost care to ensure accuracy and objectivity while developing this report
based on information available in public domain. CareEdge Ratings is not responsible for any errors or omissions in analysis / inferences / views or for results obtained from the use of information contained in this report and especially states that CareEdge Ratings has no financial liability whatsoever to the user of this report.
