Growth in bank credit in the 2QFY23 (July-September) was mostly driven by a shift in non-banking finance companies (NBFCs) borrowings to banks from other avenues, according to a Kotak Securities report.

Bank lending to NBFCs (non-banking finance companies) increased by 31 per cent in 2QFY23 (9.3 per cent of overall bank credit), driving overall credit growth for banks.

Bank credit (excluding NBFCs) was up 14.4 per cent.

“Notably, RBI data for bank lending to NBFCs likely does not include loans to PFC (Power Finance Corporation)/REC (Rural Electrification Corporation).

“On adding back, bank loans to PFC/REC, growth in overall bank loans to NBFCs would be lower at 27 per cent,” per the report put together by analysts Nischint Chawathe, M B Mahesh,Abhijeet Sakhare, Varun Palacharla and Ashlesh Sonje.

Moderate growth in NBFC loans

Bottom-up analysis by the analysts suggests 11 per cent yoy (year-on-year) loan growth for Housing Finance Companies (HFCs); rundown/slowdown at select wholesale-focused HFCs led the weakness.

Overall private sector NBFC growth (including HFCs) was hence moderate at 10 per cent in 2QFY23.

“Growth in overall NBFCs AUM (assets under management) is not yet alarming.

“Our bottom-up analysis (comprising about 75 per cent of NBFC credit and over 95 per cent Housing Finance Company/HFC credit) suggests sluggish growth for gold loans and government-owned NBFCs, while vehicle, microfinance institutions/MFIs and select diversified NBFCs are growing the fastest,” the analysts said.

While overall loan growth has been moderate till now, the analysts said they are watchful about pockets of stress.

‘NBFCs disbursements are growing at brisk pace; the trend if it continues, will lead to further acceleration in loan growth.

“Apart from increased disbursements in core segments, NBFCs are expanding into new segments and making co-origination partnerships with fintechs as well,” the report said.

Related Topics