Non-bank credit flow fell 19.4% in FY19, says central bank

Mumbai: While credit flow from non-banks declined 19.4% in fiscal year 2018-19 (FY19), flows from banking sources rose 44% during the period to meet the financing requirements of the commercial sector, the Reserve Bank of India (RBI) said in its 2018-19 annual report.

“The decline in flows from non-banks was mainly on account of lower flows from non-deposit-taking systemically important NBFCs (net of bank credit to NBFCs) and housing finance companies, particularly in the aftermath of the IL&FS event,” it added.

Non-banking sources include systemically important non-deposit-taking non-banking financial companies (NBFCs), net credit by housing finance companies, net issuance of commercial papers (CPs) subscribed to, by non-banks and public issues by non-financial entities, among others.

Moreover, lower issuances of debt and equity instruments by non-financial entities and lower investment by Life Insurance Corporation of India (LIC) in corporate debt, infrastructure and social sector resulted in a decline in financial flows in 2018-19 from the year-ago levels, said RBI.

“In contrast, there was a sharp increase in commercial paper issuances, coupled with higher accommodation by four all India financial institutions (AIFIs) regulated by the RBI,” it added.

The central bank said that in 2018-19 there was an improvement in the total flow of financial resources to the commercial sector, rising 4.2% on a year-on-year (y-o-y) basis.

Among foreign sources, external commercial borrowings (ECB) and foreign currency convertible bonds (FCCB) recorded net inflows for the first time in the last four years. Foreign direct investment (FDI) flows, which account for a major share of non-bank finance to the commercial sector, increased by 18.9%.

“On the other hand, short-term credit from abroad declined during the year as import growth decelerated. During Q1 of 2019-20, non-food credit maintained double-digit growth on a y-o-y basis as in the previous year. Sector-wise, credit to both ‘agriculture & allied activities’ and ‘industry’ accelerated to 8.7% (6.5% last year) and 6.4% (0.9% last year) respectively, while credit to the services sector moderated to 13.0% (23.3% last year) in June 2019.”

“It is noteworthy that credit growth to infrastructure sector recovered sharply to 15.2% in June 2019 mainly due to strong credit flow to power, telecommunications and roads sectors,” the report said.

According to the central bank, the monetary aggregates and the behavioural ratios pointed to underlying economic activity gaining resilience, although it is important to note that this improvement is set against the backdrop of a slowdown that began since 2010-11.

“Progress in capitalisation and initiatives to resolve stressed assets facilitated higher credit offtake from public sector banks (PSBs). Sector-wise, sustained growth of credit to services along with restarting of industrial credit flows was the notable feature of the steady improvement in the appetite of banks to lend during 2018-19,” said the central bank.

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