India’s Non-Banking Financial Companies (NBFCs) are undergoing a significant transformation in their funding patterns, with total borrowings projected to grow at a 13% CAGR and reach $750 billion by FY27, according to a study by Avendus Capital. This marks a notable reduction in reliance on traditional bank credit and a decisive shift toward capital market instruments.
The report highlights that by FY27, market-linked borrowings—primarily Non-Convertible Debentures (NCDs), External Commercial Borrowings (ECBs), and Commercial Paper (CPs)—are expected to account for 64% of total NBFC borrowings, up from 43% in FY24. Correspondingly, bank credit is set to decline from the current 42% share as companies diversify their funding sources.
Among market instruments, ECBs are projected to see the fastest expansion, rising at a 60% CAGR to surpass $120 billion by FY27. NCD borrowings are also expected to grow robustly at around 25% CAGR, exceeding $330 billion. Avendus noted that upper-layer NBFCs (NBFC-ULs), supported by strong credit ratings, are increasingly tapping international debt markets, with nine of the fifteen ULs boosting their ECB exposure between FY22 and FY25.
Meanwhile, middle-layer NBFCs (NBFC-MLs) are leaning more heavily on NCDs, drawn by the higher yields and flexible maturities they offer. Fourteen of the sixteen MLs recorded growth in their NCD borrowings over the same period, the study found.
Avendus Capital’s leadership attributes this shift to the maturing NBFC landscape and a supportive regulatory environment driven by the Reserve Bank of India’s scale-based framework. They note that the deepening of India’s bond market—bolstered by global index inclusion and SEBI-regulated online bond platforms—has further enabled NBFCs to access diverse and stable funding channels, strengthening liquidity resilience and aligning the sector more closely with global capital markets.
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