100-Word Take | Bank credit to NBFCs contracts in January

Bank credit outstanding to non-banking finance companies (NBFCs) fell from Rs 5.7 lakh crore as on 21 December 2018 to Rs5.57lakh crore on 18 January 2019, a drop of Rs 13,300 crore.

The growth in bank credit outstanding to NBFCs has been decelerating in recent months. For instance, it increased by Rs 56,500 crore in September 2018, Rs 15,900 crore in October, Rs 3,700 crore in November, Rs 4,600 crore in December and it has now started to contract.

Banks have been wary of defaults by NBFCs, given the weak balance sheets of some of them and the latest data confirm the liquidity crunch they are facing.

This is bad news for small businesses that depend on NBFCs for loans. RBI data show that bank credit outstanding to the micro and small services sector contracted by Rs 55,000 crore in January, while the level of bank credit outstanding to the micro and small manufacturing sector was lower in January 2019 than it was in January 2018. With NBFCs also not lending, small businesses are in trouble.

It’s no wonder then that the government is so keen to get banks to lend to small businesses.​