MFs help keep NBFC counters open as banks turn cautious
Mutual funds, which continue to benefit from India's increasing financialisation of savings, appear to have stepped in to fill the financing void created by circumspect banks that have slowed fund flows to non-bank lenders following regulatory scrutiny on such exposure.
Their support to non-banking financial companies (NBFCs) climbed 47% in October, albeit on a much smaller base. That compares with a growth of 6% in bank lending to NBFCs, although on a much larger base, but nevertheless reflecting the impact of regulatory caution on bank exposure to this segment. To be sure, banks remain the biggest financing source for NBFCs, but the share of alternative market-driven instruments in the total funding pie will increase.
«While banks will remain the dominant funding source for NBFCs, the bond market will gain market share over the near to medium term,» said Malvika Bhotika, director at Crisil Ratings. «We believe the bond market will become more attractive over the next few quarters given the expectation of a repo rate cut.»
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Mutual fund debt exposure to NBFCs, which includes their subscriptions to short-term commercial papers (CPs) and corporate debt, has hovered over ₹2 lakh crore for more than six months. Their outstanding debt exposure touched ₹2.33 lakh crore in October 2024.
Although the break-up of their exposure to CPs and bonds is not available, experts say that NBFCs have seen higher growth in
