Trend in debt exposure of MFs, banks to NBFCs: CareEdge BFSI Research

Trend in debt exposure of MFs, banks to NBFCs: CareEdge BFSI Research

CareEdge BFSI ResearchUpdated: Saturday, February 12, 2022, 12:52 PM IST
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Amidst these challenging times, the overall exposure of the banks to NBFCs has been increasing albeit at a slower rate. / Representational Image |

In the aftermath of NBFC crisis and pandemic, especially small and mid-size NBFCs faced funding issues due to risk aversion of banks, while large NBFCs were able to access funds via multiple sources including targeted long-term repo rates (TLTROs) and private placements, according to CareEdge BFSI Research report.

Amidst these challenging times, overall exposure of the banks to NBFCs has been increasing albeit at a slower rate. The Commercial Papers (CPs) and Corporate Debt (CDs) deployed together in NBFCs stood at an elevated level compared to the level witnessed in December 2020.

Figure 1: Summary of Banks Loans and MFs NBFC Debt exposure (Rs Lakh Crore)

Figure 1: Summary of Banks Loans and MFs NBFC Debt exposure (Rs Lakh Crore) | RBI, SEBI

Banks’ lending to NBFCs

Banks’ outstanding credit to NBFCs registered a y-o-y growth of 13 percent (as compared with 4 percent in December 2020). If we compare it with September 2018, banks outstanding to NBFC increased by 83.3 percent and in absolute terms, it increased from Rs 5.5 lakh crore to Rs10 lakh crore in September 2021.

The MF debt exposure (CPs and CDs together) to NBFCs witnessed a marginal decline on m-o-m basis to Rs 1.65 lakh crore in December 2021 from Rs 1.68 lakh crore in November 2021 (but was higher than the Rs 1.47 lakh crore witnessed in December 2020).

However, data in Figure 1 do not include liquidity made available to NBFCs by banks via the securitisation route (DA & PTC) and investments made by banks in the NBFCs capital market issuances.

Figure 2: Growth in bank credit to NBFCs vis-à-vis overall bank credit growth

Figure 2: Growth in bank credit to NBFCs vis-à-vis overall bank credit growth | RBI

As can be seen in Figure 2, growth in bank credit to NBFCs has generally witnessed a downward trajectory before increasing in November 2021, but resumed at a lower growth rate in December 2021, while the share of NBFCs in bank credit (non-food credit) increase by around 30 bps from December 2020.

Figure 3: Movement in Debt Funds AUM of Mutual Fund Industry

Figure 3: Movement in Debt Funds AUM of Mutual Fund Industry | Source: AMFI

As can be seen in figure 3, the proportionate share of debt funds AUM has declined (on m-o-m basis) to 38.6 percent of the total industry assets in December 2021 as compared with 40.3 percent in November 2021, while the absolute assets in Rs crores decreased marginally. The decrease can be attributed to continued inflows into equity.

The outstanding investments in CPs of NBFCs witnessed a marginal fall of Rs 0.05 lakh crore (on m-o-m basis) and stood at Rs 0.75 lakh crore in December 2021. It was Rs 0.80 lakh crore in November 2021 and Rs.0.58 lakh crore in December 2020. The percentage share of funds deployed by MFs in CPs of NBFCs in October 2021 stood at 4.3 percent of debt AUMs (compared with 9.5 percent in September 2018 and 3.5 percent in December 2020).

On the other hand, the investments in corporate debt of NBFCs increased marginally by Rs 0.02 lakh crore on mo-m basis at Rs 0.90 lakh crore in December 2021 and increased from Rs 0.89 lakh crore in December 2020. The percentage share too increased to 5.1 percent in December 2021 from 5.0 percent in November 2021 but reduced from the 5.3 percent in December 2020.

Figure 4: Total debt funds deployed in NBFCs via CPs and corporate debt (Rs lakh crore)

Figure 4: Total debt funds deployed in NBFCs via CPs and corporate debt (Rs lakh crore) | SEBI

In December 2021, proportion of CPs deployed in NBFCs for less than 90-days increased as NBFCs issued higher quantum of CPs for funding IPOs, while CDs deployed in NBFCs for less than 90-day marginally decreased as compared with December 2020. The proportion of CPs and corporate debt (by duration) deployed together in NBFCs as a percentage of total debt funds increased in December 2021 (9.4 percent) compared 8.8 percent in December 2020.

Figure 5: Trend in proportion of CPs & Corp. Debt deployed in NBFCs as a % of debt funds by duration

Figure 5: Trend in proportion of CPs & Corp. Debt deployed in NBFCs as a % of debt funds by duration | SEBI

Conclusion: In December 2021, the weighted average yield of corporate bonds (across tenure and rating category) at 7.01 percent was 80 bps higher than November 2021.

The cost of borrowing via CPs in December 2021 reached the highest levels since May 2020. The weighted average yield of CPs at 4.57 percent was 50 bps higher than that in November 2021 and 84 bps higher than April 2021.

The CP issuances in December 2021 were concentrated in the ultra-short-term tenure i.e., 7 to 10 days and accounted for 53 percent of total issuances. These issuances were floated by NBFCs primarily towards IPO funding. NBFC’s were the largest issuers of CPs during the month and accounted for 48 percent of the issuances.

In the secondary markets, the spreads over GSecs across rating categories narrowed for NBFC bonds. Amidst these challenging times, overall exposure of the banks to NBFCs has remained in the 8.8 -9.2 lakh crores for the last 9 months barring December 2021 when the same shot up to Rs 10 lakh crore.

The CPs and CDs deployed together in NBFCs by MFs were higher by around 60 bps compared to December 2020. The bond issuances in December 2021 albeit lower compared to December 2020 continued to be dominated by the BFS sector (share of around 75 percent).

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