Mutual fund (MF) debt exposure to NBFCs, including commercial papers (CPs) and corporate debt, remained above the ₹2-lakh crore mark for the second consecutive month touching ₹2.09-lakh crore in May, a report by CareEdge Ratings said.

This marks an increase of 22 per cent y-o-y and 0.5 per cent sequentially, with CPs consistently remaining above the one-lakh crore mark for six consecutive months, standing at ₹1.15-lakh crore, a level last seen nearly 5 years ago. In May, mutual funds’ debt exposure to NBFCs increased to 13.3 per cent of “banks’ advances to NBFCs,” up from 12.7 per cent the previous year.

MF exposure to NBFCs as a share of debt assets under management (AUM), however, has reduced from nearly 20 per cent in the latter part of 2018 to around 13 per cent by May this year. The percentage share of funds deployed by MFs in CPs as a percentage of banks’ exposure to the NBFCs stood at 7.3 per cent in May, increasing by over 50 bps y-o-y.

Bank lending

The credit exposure of banks to NBFCs stood at ₹15.6-lakh crore in May, indicating a 16 per cent y-o-y growth, the report said. This growth is despite HDFC’s exposures being reclassified after its merger with HDFC Bank. Without considering the merged entity in the base data, the growth stood at 26 per cent. On a month-on-month (m-o-m) basis, the amount rose by 0.9 per cent.

The credit extended by banks to NBFCs has exhibited a consistent upward trend for close to six years and continued its acceleration along with the phased reopening of economies after the Covid-19 pandemic. This trend can be primarily ascribed to the expansion in the AUM of NBFCs.

On the other hand, the growth rate of advances to NBFCs has been below the overall bank credit growth since December last year. This can be attributed to regulatory actions, base effect and capital market borrowings. The proportion of NBFC exposure in relation to aggregate credit has reduced from 9.6 per cent in May 2023 to 9.3 per cent in May this year.

CP/CD issuances

Certificate of deposit issuances for FY25 stood at ₹1.2-lakh crore, an 81 per cent rise y-o-y. CP issuances totalled ₹2.2-lakh crore, a modest decline of 5 per cent y-o-y. Corporate bond issuances amounted to ₹1.3-lakh crore, down 30 per cent year-on-year.