India’s banks and non-banking finance companies (NBFCs) continue to face a difficult operating environment due to a slowdown in the macro economy and weak funding conditions.
Apparently, their valuations on the bourses as well as investment appeal took a severe dent in the recent times.
Given the current economic scenario amid global COVID-19 pandemic, it seems the banks and NBFCs will find it difficult to regain investor trust.
Banks are already stressed by bad loan and poor credit demand. This has forced bank to walk a tightrope of meeting capital adequacy norms amid poor earnings.
NBFCs, facing difficulties in raising money from the capital market, are relying more on banks to meet their funding requirements, with lending to NBFCs seeing a jump of 34.7% in more than a year.
NBFCs borrowing profile has changed significantly from capital market instruments to bank borrowings.
Banks lending to NBFCs registered a growth of 34.7% from September 2018 to January 2020.
Banks advances to NBFCs stood at Rs 7.37 lakh crore as of January 2020 compared to Rs 5.47 lakh crore in September 2018.
The figures do not include funding made available to NBFCs by banks via securitisation route (direct assignment and pass through certificate), which amounted to Rs 1.70 lakh crore in 2018-19 alone.
The overall composition of NBFCs in bank credit improved from 5.5% in July 2018 to 6.6 per cent in March 2019 and 7.4% in January 2020.
After the liquidity crisis triggered in the NBFC sector following default by IL&FS, MFs withdrew significant amount of their investments from this category.
The percentage share of funds deployed by mutual funds in CPs of NBFCs in January 2020 stood stable at 4.7% of debt AUMs (lowest since July 2018), while the amount held was Rs 0.7 lakh crore.
Investments in corporate debt paper of NBFCs held steady at Rs 1 lakh crore in January 2020, and the percentage share declined to 6.2% compared with 6.5% in November 2019 and 7.7% in July 2018.
The proportionate share of debt oriented scheme is 28.6% of industry assets in January 2020, down from 29% in January 2019 due to credit concerns.
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