Credit sanctions to pick up traction as base effect fades, say NBFCs

The business activity in the last quarter of FY23, January-March, was average compared with the same period a year earlier. This reflects the pent-up demands after the pandemic.

Senior executives at NBFCs said that credit sanctions from finance companies fell in Q4 FY23 because of the base effect and a spike in interest rates. However, they expect them to pick up again in the coming quarters due to the strength of underlying demands and rate stabilization.

While sanctions moderated the growth of disbursements, they remained high in FY23. They said credit offtake was healthy in the first two months of FY24.

In Q4 FY23, data from the Finance Industry Development Council and CRIF revealed that non-banking financial companies (NBFCs) sanctioned loans by a mere 2.0% year-on-year. In Q4 of FY22, NBFC sanctions had increased by 28,36% YoY. CRIF, a bureau of credit, collaborates with FIDC (the lobbying group for the NBFC sector) to conduct analysis.

K V Srinivasan said that NBFCs were confident in credit sanctions increasing in the coming quarters due to the demand in the economy. The sanctions for housing and consumption-oriented activities were weak, while those for investments like commercial vehicles and other equipment performed better in FY23.

In the last quarter of FY23 (January-March), business activity was regularly compared with the same period a year earlier. This reflects pent-up demands after the pandemic. The low sanctions were due to a base effect. According to a top executive of a finance company, as this base effect fades away, credit sanctions, which are a precursor for disbursements, will also improve.

Banks park Rs 1,850 Cr in response to RBI’s VRRR auction, which lasted two days.

Repos are used to inject liquidity into the banking sector, and reverse repos are used to drain it.

On Wednesday, the Reserve Bank of India conducted a 2-day variable rate reverse repo (VRRR) auction. However, the banks only deposited Rs 1,850 against the Rs 75,000 crore notified amount.

Banks are wary about participating in VR auctions, as the banks will have to pay advance taxes by the middle month. This will drain liquidity.

Repos are used to inject liquidity into the banking sector, and reverse repos are used to drain it.

The surplus liquidity in the bank system exceeded Rs 2 trillion on Monday and Tuesday this week. On Monday, the surplus was Rs 2,26 trillion; on Tuesday, it reached Rs 2,11 trillion.

“The banks are being cautious in deploying surplus funds into VR due to the monetary policy that will be announced Thursday. They will also be looking at the policy tone, said Madan Sabnavis—chief economist of the Bank of Baroda.

The liquidity conditions were tighter last month due to strong credit demand but have eased significantly since the end of May due to increased government spending and the central bank’s decision to remove the Rs 2000 note.

According to the latest RBI data, the currency in circulation on June 2 was Rs 34.14 trillion. This is a decrease of Rs 27,277 billion over the previous weeks. The withdrawal of the Rs 2,000 banknote began on May 23 and will continue until September 30.

Nascent recovery of IT funds: Invest systematically, hold long-term

Experts recommend holding tech stocks long-term, saying they may be affected if economic conditions worsen in the US or Europe.

Following a prolonged period of stagnation, technology sector funds are now in recovery mode in line with global markets. These funds’ active (direct plans) have generated a category-average return of 5.4% year-to-date, higher than the 2.7% return on the Nifty50 index and the 1.5% return on the Nifty IT Index. In total, 16 funds (active and non-active) in this category have assets of Rs 25,796 crores (April 30, 2020).

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