NBFCs turn to alternatives for growth as lending from banks slows down: Crisil Ratings

To continue their growth march, non-banking financial companies (NBFCs) are increasingly trying to access sources of finance beyond banks, such as non-convertible debentures (NCDs), commercial paper (CPs), foreign currency debentures (FCBs) and securitization. suggested Crisil Ratings.

According to the rating agency, this comes in the wake of difficulties in accessing bank loans freely as in the past, after the risk weightings of bank loans to highly rated NBFCs were increased last year.

A study of over 110 NBFCs rated by CRISIL Ratings, accounting for over 95 per cent of the sector’s assets under management (AUM), shows that the share of bank loans in the sector’s borrowings fell by 60 basis points to 47 in the April-June quarter.

Malvika Bhotika, Director, CRISIL Ratings, said: “As banks continue to be the dominant source of funds for NBFCs, the bond market will gain market share in the near to medium term.”

Bhotika believes the bond market will become more attractive in the next few quarters, given the expectation of a repo rate cut.

In the near to medium term, financing diversification across source types will remain imperative for NBFCs to sustain their growth trajectory.

Crisil Ratings said diversification is also vital to optimize the cost of borrowing, given that bank financing has become expensive by 20-50 basis points in the last few quarters. This means NBFCs will have to continue to resort to other avenues of financing. (MOMENT)