NBFCs in India Seek New Funding Sources Amid Bank Loan Challenges: CRISIL Ratings
Non-banking financial companies (NBFCs) in India are increasingly looking for funding options beyond traditional bank loans. These options include non-convertible debentures (NCD), commercial papers (CP), foreign currency borrowings (FCB), and securitisation. This shift comes after risk weights on bank lending to higher-rated NBFCs were raised last year, making bank loans less accessible.
A study by CRISIL Ratings, covering over 110 NBFCs and accounting for over 95% of the sector’s assets under management (AUM), shows that the share of bank loans in NBFCs’ borrowings declined by 60 basis points to 47% in the April-June quarter.
Malvika Bhotika, Director at CRISIL Ratings, stated, “While banks will remain the dominant funding source for NBFCs, the bond market will gain market share over the near to medium term.” She believes that the bond market will become more attractive in the coming quarters due to the expectation of a repo rate cut.
CRISIL Ratings emphasized that funding diversification is crucial for NBFCs to continue their growth trajectory and optimize borrowing costs, as bank funding has become more expensive by 20-50 basis points over the past few quarters. Therefore, NBFCs will need to keep exploring other funding avenues.
Doubts Revealed
NBFCs -: NBFCs stands for Non-Banking Financial Companies. These are companies in India that provide financial services like loans and investments but are not banks.
CRISIL Ratings -: CRISIL Ratings is a company that evaluates the creditworthiness of businesses and financial institutions. It helps people understand how safe it is to lend money to these companies.
non-convertible debentures -: Non-convertible debentures are a type of loan that companies can take from people. Unlike some other loans, these cannot be converted into company shares.
commercial papers -: Commercial papers are short-term loans that companies can take from investors. They usually have to be paid back within a year.
foreign currency borrowings -: Foreign currency borrowings are loans that companies take in a currency other than Indian Rupees. This can help them get better interest rates or access more money.
securitisation -: Securitisation is when a company bundles its loans and sells them to investors. This helps the company get money upfront while the investors earn from the loan repayments.
risk weights -: Risk weights are numbers that banks use to decide how risky it is to lend money to someone. Higher risk weights mean the loan is considered riskier.
bond market -: The bond market is a place where companies and governments can borrow money from investors by selling bonds. Bonds are like IOUs that promise to pay back the money with interest.
funding diversification -: Funding diversification means getting money from different sources. This helps companies not rely too much on one type of loan or investor.
Malvika Bhotika -: Malvika Bhotika is a director at CRISIL Ratings. She provides insights and analysis on financial matters, like how companies can get money.
