According to the data from Reserve bank of India, bank loans to Non-bank finance companies (NBFCs) increased by 21% YOY. Borrowing is shifting to the banking system amid a sharp pullout of funds from debt mutual funds and rising funding costs in capital markets. Bank credit to NBFCs witnessed a healthy growth of 11.2% in 2021-22 and has continued its upward trajectory, reporting a growth of 17.4% in April 2022 and 20.6% in May 2022.
Bank loans to NBFCs touched Rs 11 lakh crore in May 2022. During the same period, mutual fund debt exposure to NBFCs dropped 3.4% to Rs 1.5 lakh crore. As per Sanjay Agarwal, director of CareEdge- “Banks outstanding credit to NBFCs has been rising as compared to last year due to a low-base effect, pickup in economic activities, and shifting of borrowing due to rising yields in the capital market.”
Growth in Overall Bank Credit
Credit growth within scheduled commercial banks (SCBs) reached 13.1% from post-August 2021 to early June 2022. The growth in bank credit is supported by economic expansion tracking nominal GDP growth, rise in government and private capital expenditure, rising commodity prices, implementation of the PLI scheme, the extension of ECLGS for MSME and retail credit push. A double digit wholesale credit along with retail credit contributed to the overall bank credit growth.
The gross non-performing assets (GNPA) ratio hit a six-year low of 5.9 per cent in FY22 but remained above the pre-asset quality review of 2015-16. However, India’s NPA ratio remains one of the highest among the comparable countries despite a gradual decline.
According to Deloitte India’s economic outlook report-July 2022 Indian economy is projected to grow by 7.1-7.6% in 2022-23 and 6-6.7% in 2023-24. The Indian economy is expected to grow despite the surge in commodity price, geopolitical tension and rise in inflation. Reserve Bank of India (RBI) has projected a GDP growth of 7.2 per cent for the current fiscal ending March 2023.
Lower prices of manufactured and fuel items contributed to the wholesale price-based inflation easing to 15.18% in June . The WPI was at a record high of 15.88% last month and 12.07% June last year. Retail inflation remained above the RBI’s comfort level for the sixth month in a row and was at 7.01 per cent in June.
Government plans for the next round of bank mergers
After conducting a detailed study on the outcome of amalgamation in state-run banks, the government is planning to initiate the next round of public sector bank mergers. The aim is to have 4-5 large banks as large and strong as the country’s biggest lender State Bank of India . At present, there are seven large public sector banks and five smaller ones.
RBI and Bank Indonesia agreement on expansion of corporation in payment system
The Reserve Bank of India and Bank Indonesia entered into an agreement to expand cooperation in payment systems, digital financial innovation, and anti-money laundering and combating the financing of terrorism (AML-CFT).
With this MoU, RBI and BI committed to deepen relations between both central banks and strengthen the exchange of information and cooperation in the area of central banking.
