Bank Lending to NBFCs Slows, Growth Rate Halves

In a notable shift from recent trends, the growth rate of bank lending to non-banking financial companies (NBFCs) has sharply decelerated. Data from the Reserve Bank of India (RBI) for July 2024 reveals that the expansion of outstanding credit exposure from banks to NBFCs has halved compared to the same period last year.

For nearly six years, banks had been significantly increasing their borrowings to NBFCs, fueling rapid growth in this sector. However, recent figures indicate a reversal in this trend. Specifically, the growth rate of credit extended to NBFCs in July 2024 is approximately 50% lower than the growth recorded in July 2023.

This slowdown in lending growth comes amidst a broader context of economic adjustments and regulatory changes. Factors such as tightening monetary policy, shifts in market sentiment, and evolving regulatory requirements may be contributing to this trend. Financial experts suggest that this deceleration could have implications for the liquidity and operational strategies of NBFCs, which have historically relied on bank credit to fuel their expansion and operations.

As the situation develops, stakeholders in the financial sector will be closely monitoring the impact of this slowdown on the broader economy and the NBFC sector’s ability to sustain its growth trajectory in the coming months.