Scaling up vertically, Diversifying Horizontally

Banks financing NBFCs had touched a 4-year low of 6.7% in 2024, according to RBI data. This had compelled NBFCs to tweak their funding pattern in the current financial year. And RBI has recently relaxed some lending norms, including existing tighter rules for bank loans to NBFCs, trimming risk weight requirements for banks on consumer microfinance loans and reverting to the earlier risk weight requirements.

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NBFCs had recently resorted to short-term commercial papers (CP) for their cash needs as funding from major lenders had slowed down. Analysts are of the view that the funding mix for NBFCs would change in the current financial year, and they may opt for loans, especially with expected rate cuts.

FUND RAISING VIA ECB

India’s NBFC sector is now having increasing access to offshore credit. RBI had said Indian NBFCs could mobilize over $9 billion through ECBs in FY24. However, only a few players offer the risk-managed maturity structure and conditions that foreign lenders require.

With funding from banks drying, some of the top-rated private and government owned NBFCs have tapped the ECB market for raising funds. For example, PNB Housing Finance was expected to raise $100-125 million each in 2 tranches by FY25 end.

Likewise, Shriram Finance plans to raise up to $1.5 billion from the overseas market, Muthoot Finance has received the RBI nod to raise $1 billion through ECBs (it had already raised $600 million earlier this financial year via the same route).