Copyright © HT Digital Streams Limit all rights reserved. RBI data showed that bank credit to NBFCs fell by 0.3% in May 2025 at a year-on-year (yoy) to £ 15.63 trillion. (Reuters) Summary experts believe that this slowdown is because NBFCs prefer to raise funds through bond markets. Mumbai: Bank credit growth to non-banking financial enterprises (NBFCs) is still losing steam, even after the Reserve Bank of India (RBI) had more stringent risk norms earlier this year to support the sector. According to experts, NBFCs are increasingly turning to cheaper and faster financing market market market, while tension in microfinance and unsecured business loans has caused banks. RBI data showed that bank credit to NBFCs fell by 0.3% in May 2025 at a year-on-year (yoy) to £ 15.63 trillion. In May 2024, the loans to the sector increased by 16%. Excluding loans to home financing companies and public financial institutions, the growth in bank loans to NBFCs in May delayed 3.6% from 7.2% in April. Experts believe this slowdown is because NBFCs prefer to raise funds through bond markets. Yields on commercial articles dropped by more than 100 basis points (or 1 percentage point) between March and April this year. According to experts, fundraising through the issuance of corporate effects during the first quarter touched on a peak of £ 3 trillion. However, the situation can be reversed with banks reducing the marginal cost of funds-based lending rate (MCLR), which refers to the rate used by banks to calculate the loan rate. It is linked to the banks’ costs of funds – almost 40% of the bank loans are linked to MCLR. If banks lower the deposit rates, MCLR can also fall, making loans cheaper. Jinay Gala, director of India Ratings & Research, believes that NBFCs would show a sluggish growth in the first quarter. “The overall banking credit growth has fallen – stress in MFI (microfinance institutions) and FinTech Business Loans has caused banks carefully about lending,” Gala said. Certainly, the total credit growth of the banking system delayed at the end of May to 9.8% of the year. MFIs and unsecured loan segments had an increase in criminals, forcing banks to delay credit to these segments. “NBFCs are therefore looking at capital markets to raise funds,” Gala added. “However, golden loans showed decent growth.” According to the Rating Agency ICRA, credit growth for banks is estimated at 10.4-11.3% for FY26, as challenges in mobilizing deposits and tension in the small unsecured segment still weigh the growth. Anil Gupta, vice president of the financial sector assessments at ICRA, said bank credit is likely to be dampened in the first quarter of the first quarter due to delayed monetary transfer, but credit demand should be improved in the coming quarters due to the cutting 50 BPS in April. “Banks will also benefit that the deposit base is getting downward repetitive,” Gupta said. “CRR cut will also come in September.” RBI, the CEO of an NBFC who spoke on condition of anonymity, said that banks are now open to lending to NBFCs, even while pointing out that PSU banks have not yet transferred the rate cut to NBFCs because they have not cut the MCLR, while a few banks in the MCLR. “Although delinquency in the NBFC sector has reached a peak, the impact will still remain for two more quarters, as many lenders who have made loans to enter into previous loans remain stuck,” this person said. The background that continues to delay credit growth to the sector, despite the RBI, which is the most risk weight on bank loans to NBFCs to 100% recovery from the earlier 125% from April 1. Since then, credit to NBFCs has dropped by more than 3%. For perspective, in November 2023, RBI increased the risk weight on bank exposures to NBFCs by 25 percentage points to build any voltage in the unsecured loan books of banks and NBFCs. This has led to the sharp decline in the growth of loans, which contributed to a slowdown in total loan growth in the NBFC sector. According to the RBI’s June 2025 financial stability report, the bank loans to NBFCs dropped to 8.8% to 8.8% during the period September 2023 during the September 2023 period. According to an Indian assessment report, A and BBB-rated NBFCs rely mainly on banks and larger NBFCs for their financing needs, and financing of the capital markets, where the transfer of rates would be faster, is close to negligible. The part of the emphasized assets of NBFCs (including NBFC MFIs) increased from 3.9% in September 2024 to 5.9% in March 2025, according to the RBI’s FSR (Financial Stability Report) report for June. Catch all the industry news, bank news and updates on live currency. Download the Mint News app to get daily market updates. More topics #banking #rbi #nbfc #loans read next story
NBFC loans shrink as shadow banks turn to effects; RBI relief fails to increase credit
