NBFCs turn to other avenues as bank credit slows on repeated RBI warnings
Subscribe to enjoy similar stories. India’s non-bank financiers have heeded calls from the Reserve Bank of India to diversify their borrowing profile and are now gradually moving towards more market borrowings and other avenues such as overseas borrowing and securitization or asset sales instead of relying solely upon bank loans.
Top NBFCs have seen the share of bank credit in their total debt fall significantly in July-September FY25 compared with FY24-end and the year ago period. Led by RBI's repeated cautions on rising interconnectedness between banks and NBFCs and following the increase in risk weights for bank lending to NBFCs.
This share is expected to fall further in Q3, in-line with bank credit to NBFCs falling to 6.4% in October 2024 from 18.3% a year ago, according to RBI data. After repeated warnings over the past two years by the central bank with respect to inter-connectedness between banks and NBFCs and the latter’s increasing reliance on banks, the central bank in its September bulletin noted that NBFCs have diversified their funding sources and reduced their borrowing from banks following the increase in risk weights.
Flagging unprecedented growth in certain segments of unsecured loans, RBI had in November 2023 increased risk weights on some such loans by banks and NBFCs by 25%. “The top 10 NBFCs have a fund demand of ₹2 trillion in FY25, which is about 20% growth on year.
Another ₹2.5 trillion of debt will come up for repricing, which puts total demand from these top 10 NBFCs—comprising about 75% of the market—at around ₹4.5 trillion," said Jinay Gala, director, India Ratings & Research. The ratings agency expects the share of bank credit in NBFCs’ borrowing profile to fall to around 50% in FY25 from
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