Loan growth could slow to less than 10% as mutual funds (MFs) find it harder to finance non-banking financial companies (NBFCs) and housing finance companies (HFCs). Over the past couple of years, NBFCs have played a big role in driving loans and have accounted for a fourth or, at times, even a third of the incremental credit. This was possible because they have sourced anywhere between 25% and 40% of their borrowings from MFs, analysts at Credit Suisse point out.
However, the large redemptions from liquid funds in September suggest NBFCs will no longer find it easy to access money from MFs. Unless they are able to source borrowings from elsewhere NBFCs will be constrained for funds and that could slow their disbursements and consequently, loan growth for the system.
