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Bank lending to NBFCs surges 42%, raising questions over circular credit growth

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Bank lending to NBFCs surges 42%, raising questions over circular credit growth

Bank lending to NBFCs surges 42%, raising questions over circular credit growth

The sharp increase in bank lending also raises the question of how much of the funding is supporting incremental lending and how much is being used to refinance existing liabilities or replace market borrowings.

Bank credit to NBFCs rose 41.8% to Rs 22.53 lakh crore in September, against 3.7% growth in the year ago period. NBFCs accounted for nearly 35% of bank lending to the services sector, which grew 28.3% to Rs 64.9 lakh crore. Rising bank-NBFC interdependence increases the risk of financial contagion if asset quality deteriorates among non-bank lenders. The surge raises questions over whether bank funding is driving incremental lending or refinancing existing NBFC liabilities and replacing market borrowings.

Bank lending to non-banking financial companies (NBFCs) surged 41.8% year on year to Rs 22.53 lakh crore in September, sharply outpacing overall non-food bank credit growth of 19.1%, highlighting the growing dependence of non-bank lenders on bank funding as credit demand expands. The acceleration was particularly sharp compared with the 3.7% growth recorded in bank lending to NBFCs in the corresponding period last year. NBFCs accounted for nearly 35% of outstanding bank credit to the services sector, which grew 28.3% year on year to Rs 64.9 lakh crore. Lending to public financial institutions increased 79.7%, while credit to housing finance companies grew 19.7%. Overall bank credit, including food and non-food credit, rose 19.4% year on year to Rs 229.95 lakh crore as of September 30. Advt



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