NBFCs relying more on bank loans: RBI

livemint.com:

RBI)’s September bulletin. RBI regulations classify the NBFCs into four layers based on the size, activity and perceived risks. The upper layer comprises prominent names like Tata Sons, LIC Housing Finance and Shriram Finance, according to a recent RBI notification.

NBFCs primarily finance their operations through a mix of market borrowing and bank loans, constituting around 75% of total borrowings. According to the analysis, the substantial reliance on banks makes them the largest net borrowers, thus intricately linking them to the broader financial system. The article pertains to the sector’s performance during the 2022-23 period, up to Q3.

Although there were 9,443 RBI-registered NBFCs as of 31 March, the analysis is based on a sample of 205 firms that regularly submitted returns for all quarters from December 2020 to December 2022. “During the assessment period, NBFCs’ reliance on banks increased steadily due to (the) low interest environment and lag monetary policy transmission," the article said. The banks’ share in aggregate NBFC borrowings rose to 35.1% last December, against 29.7% in December 2020, the data cited showed.

While the article was written by RBI officials, it had the usual disclaimer that the views expressed are those of authors and do not reflect the views of the organization. “A deeper analysis highlights the banks’ preference in lending to NBFCs in the upper layer." Direct bank borrowings by the upper-layer NBFCs grew steadily in recent quarters, accounting for nearly half of the total borrowings at the end of December 2022. Those in the middle layer relied more on debentures, although their bank borrowings also grew in recent times.