CRISIL Ratings forecasts a significant increase in the share of bank loans for non-banking financial companies (NBFCs) by FY27, as elevated bond yields make bank credit a more attractive and cost-effective funding option.
Illustration: Uttam Ghosh
Key Points
- The share of bank loans in NBFCs’ total borrowings is projected to reach 44–45 per cent by FY27, up from 43 per cent in H2 FY26.
- Elevated government security and corporate bond yields are expected to keep corporate bond interest rates higher than bank lending rates in the initial part of FY27.
- NBFCs’ preference for bank credit will continue due to the relative cost advantage over capital market borrowings.
- External commercial borrowings (ECBs) are likely to remain muted in the near term due to geopolitical uncertainties and exchange rate volatility.
- Securitisation volumes are expected to remain a key funding avenue, particularly for mid- and small-sized NBFCs.
The share of bank loans in the overall borrowings of non-banking financial companies (NBFCs) may rise to 44–45 per cent in FY27, after increasing by 200 basis points (bps) to 43 per cent in the second half of FY26, according to CRISIL Ratings.
It noted that while bank lending rates continued to soften through the last financial year, bond yields — after declining in the first half — edged up in the second half and remain elevated.
Funding Landscape Shifts
The share of external commercial borrowings (ECBs) is likely to remain muted in the near term due to geopolitical uncertainties and resultant exchange rate volatility.
And, securitisation is expected to provide some support to resource mobilisation.
Malvika Bhotika, director, CRISIL Ratings, said, “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 remain higher than bank lending rates in the initial part of FY27, 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 financial year.”
Divergent Trends in FY26
The first and second halves of FY26 saw divergent trends, driven by the relative cost of capital market borrowings and bank loans.
Bond yields fell more than 80 bps between January and July 2025, while banks’ weighted average lending rate declined by around 50 bps.
However, yields later reversed course and rose above January 2025 levels by March 2026, even as lending rates declined further.
Consequently, bond issuances declined to Rs 1.4 trillion in the second half from Rs 2.1 trillion in the first half. Bank lending to NBFCs recorded a sharp net increase of about Rs 2.5 trillion, compared with a net decrease of around Rs 0.2 trillion earlier.
Securitisation and ECBs
Securitisation volumes rose 30 per cent to around Rs 1.3 trillion in the second half, supported by stable collection efficiencies.
They are expected to remain a key funding avenue, particularly for mid- and small-sized NBFCs.
Rounak Agarwal, associate director, CRISIL Ratings, said, “Given the increased traction for ECBs last financial year, 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 stabilises.”
Future Outlook
Going forward, diversification of funding sources will remain critical for NBFCs to ensure adequate liquidity at optimal cost, especially amid the evolving macroeconomic and regulatory conditions.
