With increased risk weights and exposure reaching sectoral limits, bank direct lending to non-banking finance companies (NBFCs) in the country is expected to be Rs 1.7-1.9 trillion in the next financial year (FY25), according to rating agency ICRA.
The incremental direct bank lending to NBFCs was Rs 1.61 trillion in the 10-month of the current financial year (FY24).
ICRA said bank credit to the NBFC sector has moderated in the past few months. Going forward, banks would be more constrained to raise the share of their exposures to the sector. This would be in the backdrop of their internal sectoral limits and the recent increase in risk weights by the Reserve Bank of India for bank exposures to the NBFCs.
In November 2023, RBI hiked risk weight by 25 per cent where it (risk weight) was below 100 per cent, signalling the regulator’s concerns about high pace of bank lending to NBFCs.
According to RBI data, the outstanding bank loans to NBFCs stood at Rs 15.03 trillion in January 2024. Bank lent Rs 3.08 trillion to finance companies in FY23. It was much lower at Rs 73,831 crore in FY22.
The estimated incremental direct bank lending of Rs 1.7-1.9 trillion for FY25 would be about 33 per cent of the total base case incremental funding requirements of the sector (Rs 5.3-5.5 trillion) in FY25. This is against meeting an estimated 38 per cent of incremental funding requirements in FY24 via direct lending, ICRA said.
Over the past three to four years, private banks, within the banking group, expanded their share in the overall bank exposures to the NBFC sector.
The tighter liquidity, increased competition in deposit mobilisation and requirement to improve credit-deposit (CD) ratio shall impact private banks’ participation in the same manner over the near term at least. This may have a cascading effect on credit flow to the financial firms including housing finance companies unless the public sector banks raise their exposures.
First Published: Mar 25 2024 | 5:13 PM IST