The share of bank loans in overall borrowings of the non-banking financial companies (NBFCs) sector¹ is set to rise to 44-45% this fiscal—after increasing 200 basis points (bps) to ~43% in the second half of last fiscal as interest rates of bank loans are likely to be lower than other alternate borrowing sources in the near term.

While bank lending rates continued to decline throughout last fiscal, bond yields, after declining in the first half, inched up in the second half and remain elevated.
 

The share of external commercial borrowing (ECB) issuances will be muted in the near term owing to geopolitical uncertainties and the resultant exchange rate volatility. In this milieu, securitisation is expected to provide some support to resource raising for NBFCs.

Says Malvika Bhotika, Director, Crisil Ratings, “With government security (G-sec) and corporate bond yields expected to remain elevated in the near term due to an uncertain macroeconomic environment, corporate bond interest rates are likely to continue to be higher than bank lending rates in the initial part of this fiscal at least. As a result, NBFCs’ preference for bank credit will continue. In the base case, we expect the share of bank funding in overall borrowings of NBFCs to increase 100-200 bps this fiscal.”

For the record, the two halves of last fiscal saw divergent trends, driven by the relative cost of capital market debt versus bank borrowings.

Between January and July 2025, while bond yields fell more than 80 bps, the weighted average lending rate (WALR²) of banks declined only ~50 bps. However, bond yields subsequently reversed trend, while the WALR decreased another ~40 bps between August 2025 and March 2026. In fact, bond yields had risen to above January 2025 levels by March 2026.

Consequently, bond issuances decreased from Rs 2.1 lakh crore in the first half of last fiscal to Rs 1.4 lakh crore in the second half. On the other hand, bank lending to NBFCs saw a sharp net increase of ~Rs 2.5 lakh crore (as of February-end 2026) in the second half vis-à-vis a net decrease of ~Rs 0.2 lakh crore in the first half.

Securitisation volume for NBFCs, too, surged 30% to ~Rs 1.3 lakh crore in the second half, as collection efficiencies were stable across asset classes. It will remain a strong alternative fund-raising tool, especially for mid- and small-sized players.

Notably, global debt market borrowings also attracted increased interest in the first half of last fiscal, as players sought to diversify their resource mix while optimising overall borrowing cost.

Says Rounak Agarwal, Associate Director, Crisil Ratings, “Given the increased traction for ECBs last fiscal, their share in the resource mix of NBFCs is estimated to have risen ~100 bps. In the near term, a sharp rupee depreciation amid ongoing geopolitical uncertainties could make this route less attractive. However, the recent amendment in ECB regulations, covering aspects such as maturity period, end use, borrowing limit and hedging requirements, is expected to provide greater flexibility for NBFCs to consider the ECB route over the medium to long term once exchange rate volatility stabilizes.”

Going forward, diversification of the resource mix remains crucial for NBFCs to ensure adequate funding availability at optimal cost to support their growth plans. This is particularly important during macroeconomic or regulatory changes, as entities with the flexibility to switch between multiple funding sources tend to be more resilient and manage uncertainties better.

¹ Includes NBFCs and housing finance companies but excludes government-owned NBFCs
² The WALR is based on fresh rupee loans across all rating categories whereas the bond yields are for a AAA rated public sector undertaking (PSU)