In a structural shift in the funding mix of India’s Non-Banking Financial Companies (NBFCs), the borrowings of this segment is expected to rise at a 13% CAGR, reaching $750 billion by FY27, according to a study by Avendus Capital, an investment bank.
This is driven by a move away from bank dependence towards capital market instruments, such as Non-Convertible Debentures (NCDs), External Commercial Borrowings (ECBs) and Commercial Paper (CPs), the study said.
By FY27, market-based instruments are expected to make up 64% of total NBFC borrowings, compared to 43% in FY24, reflecting a gradual reduction in bank credit, which currently stands at 42%, it said.
Of this, ECB borrowings are projected to grow at 60% CAGR, crossing $120 billion, while NCD borrowings are set to expand at around 25% CAGR, exceeding $330 billion by FY27,” it added.
According to the study, upper-layer NBFCs (NBFC-ULs) are increasingly tapping global debt markets backed by strong credit ratings, with nine out of fifteen NBFC-ULs expanding their ECB share between FY22 and FY25.
In contrast, middle-layer NBFCs (NBFC-MLs) are turning to NCDs, given their higher yields and flexible maturities, with 14 out of 16 NBFC-MLs having witnessed growth in their NCD borrowings, as per the study.
Anshul Agarwal, managing director and head, Financial Institutions Group Investment Banking, Avendus Capital said, “NBFCs in India are entering a new phase of maturity, with most players rewriting their funding playbook. The shift from bank borrowings to capital market instruments will strengthen liquidity resilience and reduce systemic risk across the sector, marking a more balanced model where liability quality is as important as balance-sheet growth.”
“We believe a key catalyst of this diversification has been a supportive regulatory environment, particularly the RBI’s scale-based regulations. With ECBs and NCDs emerging as the most promising instruments for NBFCs, the next phase of growth will be driven not just by how fast they lend, but by how intelligently they fund themselves,” he said.
Snigdha Khemka, director, Financial Institutions Group Investment Banking, Avendus Capital said, “NBFCs are broadening their funding sources beyond traditional bank credit, in line with regulatory guidance and market conditions. This shift reflects a broader transition in India’s financial ecosystem. The inclusion of Indian bonds in global indices, coupled with the rise of SEBI-regulated online bond platforms, have further deepened the Indian NCD market.”
“With NBFC borrowings expected to reach $750 billion in FY27 and market instruments (including NCDs and ECBs) contributing 64%, the sector is poised for improved access to capital, improved funding stability and deeper integration with global capital markets,” she added.
Published – November 26, 2025 10:53 am IST
