NBFCs shed bank reliance for a $750 billion market playbook

Like every financial intermediary that evolves through architecture-redefining moments, non-banking financial companies (NBFCs) in India are currently pivoting to a new funding playbook. The sector is moving away from traditional bank borrowings, which constituted approximately 42% of overall funding as of March 2025.

In the post-IL&FS and pandemic era, this dependence has become increasingly expensive due to rising risk weights and tightening liquidity. "This has prompted NBFCs to rethink capital strategies and explore alternative sources of funding that are both cost-efficient and scalable," noted Avendus Capital in its November 2025 report. Consequently, total NBFC borrowings are projected to reach USD 750 billion by FY27E, backed by a robust 13% CAGR.

The "squeeze play" in bank credit

Bank credit for NBFCs is increasingly becoming a "squeeze play". In FY24, credit for Scheduled Commercial Banks (SCBs) rose 20% while deposits grew only 14%, driving the credit-deposit (CD) ratio from 69% in FY21 to 79% in FY24.

A major driver of this shift is digitisation and a growing awareness of stock markets. Customers are increasingly migrating from traditional savings accounts and fixed deposits (FDs) to market-linked products offering higher returns.

• CASA decline: Weak deposit mobilisation caused the CASA ratio of SCBs to decline from 44% in FY22 to 39% in FY24.

• Rising costs: This raised the average cost of funds for banks from 4.0% in FY23 to 5.1% in FY24, pressuring net interest margins (NIMs).

• SIP surge: Total SIP accounts reached approximately 97 million in September 2025, with monthly collections hitting an all-time high of $3.3 billion.

Regulatory push toward capital market

The RBI’s Scale-Based Regulations (SBR) framework, introduced in October 2022, has fundamentally influenced borrowing strategies.

• Upper layer (NBFC-UL) strategy: The 15 entities in this layer—including Bajaj Finance, Shriram Finance, and Tata Capital—are recommended to source at least 25% of their borrowings via capital market routes like External Commercial Borrowings (ECBs) and Non-Convertible Debentures (NCDs).

• Middle layer (NBFC-ML) strategy: Growth in this segment is spurred by the democratisation of the NCD market. SEBI's reduction of the minimum investment for NCDs from ₹1 lakh to ₹10,000 has significantly boosted retail participation, a move further supported by Online Bond Platform Providers (OBPPs).

Global catalysts

India’s inclusion in JP Morgan’s Government Bond Index in June 2024 has profound implications. As foreign demand for sovereign bonds increases, yields on long-dated government bonds are expected to compress. Since corporate bond and NCD yields are benchmarked to these rates, this will likely lead to lower yield floors, reducing the cost of issuance and making NCDs even more attractive for NBFCs.

Stability over speed

The transition toward a more diversified borrowing profile marks a structural rebalancing of NBFC liabilities. While bank credit remains a systemic pillar, the shift toward market-linked instruments—expected to constitute 64% of the mix by FY27E—will enhance the sector's resilience against domestic liquidity cycles.

Ultimately, the sector's next phase of growth will not be defined by how fast NBFCs can expand their books, but by how intelligently they fund themselves. By building a sustainable, long-term credit franchise that reduces concentration risk, NBFCs are positioning themselves to better withstand global macroeconomic headwinds while supporting India’s broader credit ecosystem.