Bank credit to NBFCs expanded by double digits in FY22, with outstanding bank credit to them increasing by 10.4% to Rs 10.5 lakh crore, owing to improved overall economic activity and banks' renewed attention on the NBFC sector following improved balance sheets, says a report.

According to a Care Ratings analysis, bank lending to nonbanking financial companies (NBFCs) increased by Rs 99,000 crore in FY22 compared to FY21. The figure excludes bank liquidity provided to NBFCs via securitization (direct assignment and pass-through certificates) as well as bank investments in NBFC debt instruments.

Meanwhile, mutual funds' debt exposure to NBFCs through commercial papers (CPs) and corporate bonds increased 14.3% to Rs 1.7 lakh crore in FY22, as NBFCs issued more CPs to fund IPOs and moved their investments from long-term to short-term in anticipation of interest rate hikes.

In absolute terms, it widened by Rs 21,000 crore, says the report. In FY22, outstanding NBFC CP investments increased by 25% to Rs 73,000 crore, as the year was the best in IPO history, with NBFCs issuing CPs worth Rs 15,000 crore to fund IPOs.

For the most of FY22, banks' credit exposure to NBFCs hovered around Rs 9 lakh crore, crossing the Rs 10 lakh crore milestone in December 2021.

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