After facing liquidity crunch in the 2018-end and the coronavirus-led disruption, the non-banking financial companies (NBFC) have been shifting towards banks from Mutual Funds (MF) for their borrowings requirements, a report suggests.
Non-banking financial companies (NBFCs) have had it rough. Since 2018-end, when they faced a liquidity crisis, to the coronavirus pandemic led disruption, India's shadow banks have been struggling. Now, a report by CARE Ratings suggests that there is a change in their borrowing pattern. NBFCs are preferring banks over mutual funds to borrow in this market.
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“The NBFC borrowings from MFs continue to decline, while banks outstanding advances to NBFCs are increasing in April 2020. The overall funding available to NBFCs remains stable at Rs 9.46 lakh crore as compared with March 2020 level (14.1 percent growth over Rs. 8.29 lakh crore in April 2019), despite the marginal contraction in MFs funding, CARE Ratings said in a report.
The overall composition of NBFCs in bank credit increased to 8.9 percent in April 2020 from 6.9 percent in September 2018.
Banks’ outstanding to NBFCs registered the highest growth of 48.6 percent from September 2018 to April 2020. Post-September 2018, NBFCs are struggling to raise funds from the capital markets with higher borrowing costs and lack of availability of funds and so, there has been a shift to bank borrowings from market borrowing.
The report notes that the proportionate share of debt AUM has improved to 51.9 percent of total industry assets in April 2020 as compared with 47.8 percent in March 2020.
The investments in commercial papers (CP) of NBFCs are flat on a monthly basis. After the liquidity crisis triggered in the NBFC space, MFs withdrew over 40 percent of their investments from this category.
The percentage share of funds deployed by MFs in CPs of NBFCs in April 2020 fell to 3.3 percent of debt AUMs (lowest since September 2018 when it was 9.5 percent) and the amount held declined to just Rs 0.44 lakh crore, the report said.
The external commercial borrowings (ECBs) registrations in financial services declined to $0.16 billion, (22.7 percent of total ECBs registrations) in April 2020 as compared to $1.3 billion (47.1 percent of total ECBs registration) in April 2019 given the challenging circumstances in the global market.
NBFCs have received liquidity headroom due to the announcement of the Special Liquidity facility and modification of the partial guarantee scheme. The extended partial credit guarantee scheme (PCGS) would incentivize public sector banks to take additional exposure to NBFC sector, CARE Ratings said.
Further, the rating agency believes that the temporary increase in group exposure limits from 25 percent to 30 percent will enable larger business groups to seek additional funding from the banking system.