Banks’ credit to NBFIs falls sharply

Banks’ credit to non-bank financial institutions (NBFIs) sharply declined to Rs416 billion during November-May FY25, compared to over Rs1 trillion by mid-Nov FY25. The State Bank’s latest data showed that banks had pulled back their funds from NBFIs, which were earlier injected largely to avoid government-imposed tax measures. Banks had pumped over Rs1tr into NBFIs — a record for the sector — apparently as a strategy to avoid the incremental tax applicable in case of failure to achieve an advance-to-deposit ratio (ADR) of 50 per cent by the end of December 2024. The SBP data revealed that the influx of liquidity into NBFIs exceeded the total stock of credit to the sector by 130 per cent as of mid-November 2024.