NBFCs will rely more on the capital market for growth, and not on bank loans: Avendus Capital

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

Traditionally, NBFCs have largely depended on bank loans to finance their growth. But with the Reserve Bank of India (RBI) increasing the risk weight on bank loans to NBFCs (which has subsequently been abolished) and banks struggling to attract cheap deposits, banks have become reluctant to lend to NBFCs, especially lower-rated NBFCs. bbusiness line had reported in October 2024 that the RBI had asked NBFCs to source at least 25 percent of their loans through the capital market.

“Lending diversification is evolving through various instruments such as ECBs, NCDs, CPs and ICDs. To make diversification easy for younger and small scale NBFCs, regulators have taken steps to ensure a favorable market for capital market instruments. We believe that ECBs and NCDs will be the most promising instruments for diversification for the upper (UL) and mid-tier (ML) NBFCs respectively and served as a catalyst for the increased ECB lending by NBFCs,” Avendus Capital said.

Structural rebalancing

Total bank exposure in the credit mix of NBFCs (UL + ML) stood at 42 percent as of March 2025, slightly down from 43 percent in March 2024. This moderation marks the beginning of a structural rebalancing of NBFC liabilities.

“IIFL aims to reduce bank borrowings to less than 50 per cent, thereby diversifying the credit mix. 50-60 per cent of our incremental credit mix can come from external commercial borrowings, dollar bonds, local bonds and other non-banking sources,” said Nirmal Jain, MD, IIFL Finance.

Published on November 25, 2025