The COVID-19 pandemic has severely impacted the Non-Banking Financial Companies (NBFCs), especially the small and mid-size as their sources of funds got impacted due to the reduced risk appetite of banks for low rated exposures.

On the supply side, the large and top-rated NBFCs were able to access funds via multiple sources including the support through targeted long-term repo rate (TLTRO) says CARE ratings in its research report on-trend in the exposure of Mutual Funds (MFs) and Banks to NBFCs.

Courtesy the Reserve Bank of India (RBI) and government various introduced schemes like partial credit guarantee scheme (PCGS), TLTRO, and special liquidity scheme that augmented the liquidity support to NBFC sector.

“As per RBI’s report on ‘Trends and Progress of Banking in India 2019-20’, Public Sector Banks alone account for 64 per cent of total bank lending to NBFCs in H1FY21. The increased preference for long term funds from banks reflects the support through TLTRO,” says the agency in its report. Currently, NBFCs and Housing Finance Companies (HFCs) remain the largest borrowers of funds, where a substantial part of the funding is supplied by the banks.

According to CARE ratings, despite challenging times, banks' overall exposure to NBFCs has increased, while the share of commercial papers (CPs) and corporate debt deployed together in NBFCs has gone down from December 2019 to December 2020.

“The share of NBFCs in bank credit increased from 6.9 per cent in September 2018 to 8.5 per cent in December 2020 and remained stable on a month-on-month (m-o-m) basis (8.6 per cent in November 2020),” highlights the report.

When it comes to the percentage share of funds deployed by MFs in CPs of NBFCs stood at 3.5 per cent of the debt asset under management in December 2020 as compared with 9.5 per cent witnessed in September 2018.