Decoding The Credit Flow – Tightening Liquidity, Rise In Rates Favorable For Banks Vs NBFCs: Nirmal Bang’s Thematic View


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Our analysis suggests that incremental flow of credit to the commercial sector in H1 FY23 is at a multi-year high when compared to the recent past.

Incremental credit flow in H1 FY23 stood at Rs 8 tonne, led by bank credit flow of Rs 7.4 tonne. In contrast, corporate bond issuances, which had peaked at Rs 1.5 tonne in H1 FY21 on account of lower interest rates, have now slowed to a trickle.

Incremental credit flow from banks, while being led by retail credit, is now becoming more broad-based, with services (mainly non-banking financial companies), industry (particularly micro, small and medium enterprises) and agriculture also contributing.

While the pick-up in credit bodes well for banks, we foresee pressure on net interest margins with credit growth running well ahead of deposit growth and the credit to-deposit ratio hovering ~75%.

Meanwhile, NBFCs have turned to banks for their funding needs, but banks’ exposure to NBFCs is now hovering around all-time highs.

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