NBFCs to lean more on capital market, not bank loans for growth: Avendus Capital

The share of NBFCs’ market borrowings in overall liabilities will increase from 43 per cent in FY24 to 64 per cent in FY27
| Photo Credit:
iStockphoto

Non-banking finance companies (NBFCs) will increasingly tap capital market instruments like external commercial borrowings (ECBs), non-convertible debentures (NCDs), commercial papers (CPs) and inter-corporate deposit to fund growth, Avendus Capital said in a report. The share of NBFCs’ market borrowings in overall liabilities will increase from 43 per cent in FY24 to 64 per cent in FY27, it said.

Traditionally, NBFCs relied majorly on bank borrowings to fund their growth. But with the Reserve Bank of India’s (RBI) hike in risk weight on bank loans to NBFCs (which was removed subsequently), and banks struggling to raise low cost deposits, banks turned hesitant in lending to NBFCs, especially lower rated ones. businessline had in October 2024 reported that the RBI had asked NBFCs to source at least 25 per cent of their borrowings from capital market route.

“Diversification of borrowings is evolving via various instruments such as ECBs, NCDs, CPs and ICDs. To make diversification easy for younger & small scale NBFCs, regulatory bodies have taken steps to ensure a conducive market for capital market instruments. We believe, ECBs and NCDs will be the most promising instruments for diversification for upper (UL) and middle layer (ML) NBFCs respectively served as a catalyst for increased ECB borrowings by NBFCs,” Avendus Capital said.

Structural rebalancing

otal bank exposure in the borrowing mix of NBFCs (UL + ML) stood at 42 per cent as of March 2025, marginally lower than 43 per cent in March 2024. This moderation signals the beginning of a structural rebalancing in NBFC liabilities.

“IIFL is aiming to reduce bank borrowing to under 50 per cent, thereby diversifying its borrowing mix. 50-60 per cent of our incremental borrowing mix may come from external commercial borrowings, dollar bonds, local bonds and other non-bank sources,” Avendus Capital quoted IIFL Finance MD Nirmal Jain as saying.

Published on November 25, 2025