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Credit rating agency, India Ratings and Research (Ind-Ra) in its latest report has said that the funding profile of small and mid-sized non-bank finance companies (NBFCs) is improving, on the back of the resilience exhibited by them during COVID-19 and a build-up of track record.

As per the report, bank lending to NBFCs grew by 31% in September 2022. Large NBFCs tap banks and capital markets both for their funding needs; however, with the increase in rates in capital markets during 1HFY23, they were largely focusing on banking channels. However now with the sharp rise in bank’s lending rates and stable rates in the capital market, large NBFCs could partially move to tap incremental funding through the capital market as well. While mid- & small-size NBFCs are majorly dependent on banks, banks also have selectively gained confidence on these NBFCs based on their performance during the pandemic and support shown by sponsors.

The agency further noted that with the improving funding access, there will be stiff competition among mid- and small-sized NBFCs to the extent they cater to commoditised products such as lending to SMEs through the secured and unsecured routes. Thus, as per the Ind-Ra, this is a key monitorable factor in the medium term.