According to a report by BofA Global Research, domestic banks’ share of total business loans fell in FY2021 from 56% in FY2011 to a low of 34%.
The share of non-banks in business loans more than doubled to 44%, while the share of foreign banks rose to 22% in FY21, taking total non-bank lending flows to two-thirds of the total, brokerage highlights in the report.
Inflows from domestic non-bank sources accounted for 44% of total lending to the commercial sector in FY21, more than double the figure for FY2011, it said.
The agency included FDI, bank lending and IPO investment as part of foreign lending to the industry, which rose to 22% of total flow in FY21 — again doubling from FY2011. The brokerage firm said it sees the metric in FY22 even as net FDI inflow slows.
The report also showed that non-bank lending to the commercial sector included disbursements from NBFCs and home finance companies, net investments by LICs in corporate bonds, CPs, public and rights issues and private placements by non-financial corporations, and lines of credit offered by NHB. Nabard and the like.
Of total non-bank source lending to the commercial sector in FY2021, 38% was gross private placements by non-financial institutions and 22% was channeled through NBFCs. Commercial paper and corporate debt to January 2022 was 6.9 lakh crore, compared to 8.4 lakh crore in the same period of FY21.
Similarly, 22% of total credit to the commercial sector was routed through foreign sources, including ECBs/FCCBs, short-term foreign borrowing, foreign direct investment and ADR/DDR issuance excluding banks and financial institutions in FY21 than FDI alone reached a record ₹4 lakh crore. But so far this fiscal year, FDI inflows have been small.
According to BofA analysts led by Aashta Gudwani, non-financial firms have significantly reduced their reliance on bank loans to meet their financing needs for some time, leading to this massive decline, and domestic non-banks (such as NBFCs and IPOs) as a result. and foreign (FDI) sources have become more important.
While bank credit flow slowed amid the FY21 pandemic, non-bank lending surged, so much so that even when bank lending flow declined 1.7% in FY20, non-bank lending rose 18%, leading to an increase in the Non-bank lending led to a 10.4 percent growth in total resource flow to the commercial sector, she said.
Non-food outstanding loan growth slowed to 5.5 percent in March 2021 from an already low 6.1 percent in March 2020 as the pandemic shock hit the economy.
But with the ongoing recovery, it has improved to 8 percent by February 2022. Bank lending inflows for non-food lending declined 3.4 percent in FY21 but rose 17 percent through February in FY22. On an annualized basis, total cash inflow this fiscal year to date is up 6 percent in fiscal 21.
Bank lending has therefore fared much better so far, trailing senior sector lending, which rose to its highest level at 59% of total flow in the first three quarters of FY22, followed by personal lending (including home loans, which grew 31% ).
However, only 14% of bank lending went to industry, while bank lending to agriculture accounted for 18% due to the ELCG program. This trend was also visible in FY21, when 44% of additional bank lending was disbursed to the priority sector and only 6% to industry.
The brokerage also aimed to correct the widespread notion that loan disbursements are used interchangeably as bank loans (especially non-grocery bank loans), saying the trend was only true until 2017, since when bank loans in total trade credit have declined. especially after RBI’s Asset Quality Review, and NBFCs quickly filled the gap. However, this could not last long after IL&FS went bankrupt and then the DHFL also went bankrupt in 2018.
The sectoral utilization of outstanding bank loans also shows that industrial loans grew only slowly by 7.6% in December 2021. Credit to the service sector also grew a paltry 10.8%, but growth in consumer credit and farm credit was encouraging at 14.3%, up 14.5% and 14.5% respectively.
