NBFCs Shift to Bank Borrowings Amid Lower Interest Rates in FY27

Non-banking finance companies (NBFCs) are anticipated to increase their reliance on bank borrowings in FY27 as lower interest rates make this option more attractive, a recent report by Crisil Ratings suggests. Currently accounting for 43% of their borrowing mix, bank lending is projected to rise to as much as 45% by the end of this fiscal year.

This shift towards bank borrowings is attributed to persistently low lending rates in the bank market, as opposed to rising bond yields, which have made debt capital market issuances less favorable for NBFCs. The agency indicated that while bond yields initially fell during the last fiscal, they escalated in the latter half, further tilting the balance toward bank loans.

Additionally, the market for external commercial borrowings is also subdued due to ongoing geopolitical tensions and exchange rate volatility. Under these circumstances, NBFCs may look towards securitisation to meet their funding requirements. Crisil Ratings emphasized the importance of diversifying funding sources to maintain growth and optimize costs, considering the fluctuating economic landscape.