March 18, Mumbai: Non-Banking Financial Companies (NBFCs) were the largest net borrowers of funds from the financial system, points out CARE Ratings in its report on “Trend in Exposure of Mutual Funds and Banks to NBFCs.”
This is an analysis based on Reserve Bank of India’s (RBI) Financial Stability Report (FSR) issued in December 2019,
The data by the RBI highlights the gradual change in the liability profile of NBFCs as they have witnessed a rise in the share of borrowings through banks. Out of total borrowings, as on September 30,2019, the 48.4 per cent are from banks versus 42.3 per cent in June 2018.
On the flipside, the share of borrowings through mutual funds have declined from 33 per cent in June 2018 to 25.9 per cent in September 2019. As per the report, the NBFCs earlier had a huge dependence on capital market instruments at 56 per cent as on 31 March,2017. However, between FY2018 and FY2019 the share of banks in total borrowings has increased to 48.4 per cent in September 2019. Borrowings from banks and Mutual funds together accounts for 74.3 per cent of the funding mix.
“Over the past year NBFCs have continued to face liquidity concerns. NBFCs' borrowing profile has changed significantly from capital market instruments to bank borrowings. Debt issuance in the primary market shows that the share of financial services has come down since March 2019, while it has increased for the other segments indicating a shift in the borrowing pattern,” says CARE Ratings in its analysis. In the current situation, it is clear that NBFCs are finding it difficult to raise funds from the capital market due to higher cost and lack of availability of funds. This explains the reason on why there has been a shift to bank borrowings from market borrowing by NBFCs.