The money raised by non-banking finance companies (NBFCs) from mutual funds rose by almost 30 per cent year-on-year (Y-o-Y) to Rs 2.08 trillion in April 2024, the rating agency CareEdge data showed.
The mutual fund debt exposure to NBFCs had risen by just 0.2 per cent Y-o-Y to Rs 1.6 lakh crore in April 2023.
Analysts and NBFC executives said this increase in funding signals mutual funds’ comfort in taking exposure to the 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 lowering of the gap in the cost of funds between money taken from asset management companies and banks have also contributed to the increase in funding.
Sanjay Agarwal, senior director, CareEdge, said about five years back there was certain credit risk aversion amongst mutual funds for NBFCs. Investors in mutual fund schemes were not comfortable with taking such exposure. Hence, NBFCs moved to banks to get money.
However, over the last three to four years, the situation has undergone change in the sense that there is ease in giving funds to NBFCs. There is a realisation that better-rated finance companies are robust to take exposure and the finance companies have been looking at diversification of sources of funds, Agarwal added.
The scale of banking to NBFCs in absolute amounts is much higher in comparison to that from mutual funds. The outstanding bank credit to NBFCs stood at Rs 15.54 trillion in April 2024. The bank fund supply to NBFCs grew by 14.6 per cent Y-o-Y basis in April 2024 as against 29.2 per cent in April 2023, according to RBI data.
The mutual fund (MF) debt exposure to NBFCs, including their commercial papers (CPs) and corporate debt, crossed the Rs two trillion mark after 55 months. The last time the exposure was above Rs two 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 larger and better-rated NBFCs have been accessing the capital market since most of the issuers are from the banking, financial services, and insurance (BFSI) sector and over 90 per cent of the aggregate issuers have been either AA or AAA-rated entities. The mutual funds are significant investors in the paper issued by non-banking finance companies.
The investment in corporate debt of NBFCs increased by 23.5 per cent Y-o-Y and 4.0 per cent month-on-month (M-o-M) to Rs 0.9 trillion 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, CareEdge data showed.
First Published: Jun 05 2024 | 8:16 PM IST
