NBFC news
Despite higher risk weights, borrowings by non-banking financial companies (NBFCs) from banks increased to 22.6% as of March 31, 2024, up from 19.8% in March 2021. As of March 2023, Non-Banking Financial Company borrowings from banks stood at 21.7%, according to the Reserve Bank of India (RBI)’s Financial Stability Report released on Thursday.
Bank exposure to NBFCs rose even after the RBI mandated in November 2023 that banks increase risk weights on such exposure by 25 percentage points when the extant risk weight based on the external rating of Non-Banking Financial Companys is below 100%. RBI Governor Shaktikanta Das warned that concentrated borrowing linkages between non-bank lenders and mainstream lenders might pose contagion risks. “NBFCs are large net borrowers of funds from the financial system, with their exposure from banks being the highest,” Das said. “Banks are also significant subscribers to debentures and commercial papers issued by NBFCs. Such concentrated linkages may create a contagion risk.”
Debentures subscribed by banks fell to 2.1% of the overall liability mix from 3% in March 2021, while the share of commercial papers subscribed by banks declined marginally to 0.3% in March 2023 from 0.4% in March 2021.
Share capital, reserves, and surplus of Non-Banking Financial Companys decreased during 2023-24, making up 28.3% of their total liabilities as of March 2024. Around four-fifths of the funds sourced from banks were secured in nature.
Overall, gross advances of Non-Banking Financial Companys rose nearly 18% year-on-year (y-o-y) in 2023-24, despite some moderation in the second half of the year. This growth was driven by personal loans, loans to industry, and loans to the agriculture and services sectors. Vehicle loans made up 34.6% of retail loans as of March 31.
Within the Non-Banking Financial Company sector, Investment and Credit Companies (NBFC-ICC) constituted 57.7% of the segment. The gross advances of this category rose 24.4% y-o-y as of March 31, while microfinance-focused NBFCs saw a 27.4% increase.
The gross NPA ratio of Non-Banking Financial Companys continued to decline in the post-pandemic period, reaching 4.0% in March 2024. The capital-to-risky assets ratio stood at 26.6% in March 2024, above the minimum regulatory requirement.
