Mutual Fund Financing to NBFCs Surges by 47% to Rs 2.33 Lakh Crore in October

New Delhi, Dec 5 (NationPress) The debt investment by mutual funds (MF) in non-banking financial companies (NBFCs), which encompasses commercial papers (CPs) and corporate debt, has consistently exceeded the threshold of Rs 2 lakh crore for more than six months, achieving Rs 2.33 lakh crore in October.

A report from CareEdge Ratings indicated that this signifies a remarkable increase of 47.1 percent (year-on-year), coupled with a slight sequential growth of 0.3 percent.

Additionally, CPs have sustained levels above one lakh crore for nearly a year, currently standing at Rs 1.22 lakh crore.

The total credit exposure from banks to NBFCs amounted to Rs 15.4 lakh crore in October 2024, reflecting a growth of 6.4 percent. On a month-on-month basis, this figure increased by 0.5 percent.

In October, the debt exposure of mutual funds to NBFCs remained stable at 15.2 percent of ‘Banks' advances to NBFCs,’ a rise from 11.0 percent in October 2023.

When compared to February 2018, the overall lending from banks to NBFCs has skyrocketed to nearly 3.9 times its previous level. Simultaneously, MF exposure has shown positive growth, rising by 0.9 percent over the past six years.

On the contrary, the proportion of banks' advances to NBFCs as a fraction of total advances has nearly doubled from about 4.5 percent in February 2018 to 8.9 percent in October 2024, a level similar to that recorded in September 2024.

Nonetheless, this exposure has decreased from the 9.4 percent level of October 2023, as noted in the report.

Following the Reserve Bank of India's (RBI) increase in risk weights on bank loans to NBFCs in November 2023, the share of bank exposure to NBFCs as of October remained unchanged sequentially, while MF exposure to NBFC debt instruments has consistently stayed above the Rs 2 lakh crore mark at Rs 2.33 lakh crore in October 2024.

This trend coincides with NBFCs beginning to diversify their liability structures, as reported by CareEdge Ratings.

However, according to RBI data, the weighted average discount rate (WADR) of CPs was recorded at 7.44 percent in November 2024 (up to November 12), lower than 7.70 percent during the same period last year as NBFCs scaled back issuances due to concerns regarding the sustainability of high growth in their loan portfolios.