Banks share in industrial credit plunges in FY21

Mumbai : Domestic banks’ share in the overall commercial credit has plunged to a low of 34 per cent in FY2021 from 56 per cent in FY2011 partly due to the pandemic and more because companies are moving away from banks for funds, says a report.

The share of non-banks in the commercial credit has more than doubled to 44 per cent while that of foreign banks’ rose to 22 per cent in FY21, taking the total non-bank credit flow to two-thirds of the total, the report highlighted.

Flow from domestic non-bank sources accounted for 44 per cent of total credit to the commercial sector in FY21, more than doubling from FY11, the report by BofA Global Research stated.

The report includes FDI, bank credit and IPO investments as part of foreign credit to the industry, which rose to 22 per cent of the total flow in FY21- which again doubled from FY11. The brokerage sees the same improving in FY22 even as net FDI inflow tapers.

The report further clarifies that non-bank credit to the commercial sector includes disbursements by NBFCs and housing finance companies, LIC’s net investment in corporate debt etc, CPs, public & rights issues and private placements by non-financial entities and credit lines offered by NHB, Nabard etc.

Of the total non-bank source-based credit to the commercial sector in FY21, 38 per cent was on account of gross private placement by non-financial entities and 22 per cent was channelled via NBFCs. Commercial papers and corporate debt till January 2022 stood at Rs 6.9 lakh crore, up from Rs 8.4 lakh crore in the same period in FY21.

Similarly, 22 per cent of total credit to the commercial sector was channelled via foreign sources which include ECBs/FCCBs, short-term credit from abroad, FDI and ADR/GDR issues excluding banks and financial institutions, in FY21, when FDI alone touched a record Rs 4 lakh crore. But so far this fiscal, FDI inflows have been slow.