 "mutual fund investment")
The money raised by non-banking financial companies (NBFCs) from mutual funds (MFs) rose by almost 30 per cent year-on-year (Y-o-Y) to Rs 2.08 trillion in April 2024, shows data from rating agency CareEdge.
The MF debt exposure to NBFCs had risen by just 0.2 per cent Y-o-Y to Rs 1.6 trillion in April 2023.
Analysts and NBFC executives said this increase in funding signals MFs’ comfort in taking exposure to better-rated finance firms.
The regulatory nudge from the Reserve Bank of India (RBI) to banks to moderate the pace of funding to NBFCs and the narrowing gap in the cost of funds between money taken from asset management companies and banks have also contributed to the increase in funding.
In November 2023, RBI increased the risk weights on bank credit exposures to NBFCs by 25 percentage points. This followed the concern expressed by RBI Governor Shaktikanta Das regarding the increasing dependency of NBFCs on bank borrowings in his interactions with managing directors/chief executive officers of major banks and large NBFCs in July and August 2023.
Sanjay Agarwal, senior director at CareEdge, said that about five years ago, there was a certain credit risk aversion among MFs for NBFCs.
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Investors in MF schemes were not comfortable with taking such exposure, leading NBFCs to turn to banks for funding.
However, over the past three to four years, the situation has changed.
There is now ease in providing funds to NBFCs. There is a realisation that better-rated finance companies are robust enough to take exposure, and these companies have been diversifying their sources of funds, Agarwal added.
The scale of banking to NBFCs in absolute amounts is much higher compared to that from MFs.
The outstanding bank credit to NBFCs stood at Rs 15.54 trillion in April 2024. Bank funding to NBFCs grew by 14.6 per cent on a Y-o-Y basis in April 2024, compared to 29.2 per cent in April 2023, according to RBI data.
The MF debt exposure to NBFCs, including their commercial papers (CPs) and corporate debt, crossed the Rs 2 trillion mark after 55 months. The last time the exposure was above Rs 2 trillion was in August 2019. The CP outstanding stood at Rs 1.18 trillion. Such a level was witnessed five years ago in May 2019.
The rating agency said that larger and better-rated NBFCs have been accessing the capital market, as most of the issuers are from the banking, financial services and insurance sector, with over 90 per cent of the aggregate issuers being either AA- or AAA-rated entities.
MFs are significant investors in the paper issued by NBFCs.
The investment in corporate debt of NBFCs increased by 23.5 per cent Y-o-Y and 4 per cent month-on-month to Rs 90,000 crore in April 2024. Meanwhile, the share of total corporate debt to NBFCs inched up to 4.4 per cent in April 2024 from 4.2 per cent in April 2023, according to CARE data.
