The funding support from mutual fund houses to non-banking financial companies (NBFCs) has seen a jump in six months ending May 2024, after the Reserve Bank of India’s (RBI’s) hike in risk weightings on bank loans to NBFCs in November 2023, reported Business Standard, citing CareEdge Ratings data.
Total debt funds deployed in NBFCs via commercial paper and corporate debt rose from ~1.6 trillion at the end of October 2023 to about ~2.1 trillion by the end of May 2024, showed CareEdge Ratings data, it said.
Debt exposure to NBFCs, including commercial papers and corporate debt, rose by 22 percent year-on-year (Y-o-Y) to ~2.09 trillion. This exposure has remained above the ~2 trillion mark for the second consecutive month, said the report.
Investment in commercial papers
Mutual funds’ (MFs’) exposure through investments in commercial papers, stood at ~1.15 trillion in May. This is a level seen five years ago in May 2019, said BS.
Exposure to commercial paper has remained above the ~1 trillion mark for six straight months, the rating agency shows, it added.
Bank loans to finance companies rose by 16 per cent Y-oY to ~15.6 trillion in May 2024. Bank credit to NBFCs was ~14.76 trillion in October 2023, according to RBI data, stated the report.
In November 2023, RBI raised concerns about the extent of bank funding to NBFCs and increased risk weights on such exposures by 25 percentage points, it said.
In May 2024, MFs’ debt exposure to NBFCs rose to 13.3 percent of ‘banks’ advances to NBFCs’, up from 12.7 percent in May 2023, said BS.
The rating agency noted that MF exposure to NBFCs as a share of debt assets under management reduced from nearly 20 percent in late 2018 to around 13 percent by May 2024, the report said.
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