NBFCs likely to rely more on funding from banks: India Ratings
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India Ratings and Research in its latest report has said Non-bank finance companies (NBFCs) may rely more on banks for their funding requirements as interest rates are hardening in the capital market. It stated as the sector moves towards banks for meeting its funding requirements, smaller NBFCs could witness a sharp increase in their funding costs. It mentioned ‘The borrowings of non-bank finance companies (NBFCs) could get skewed to banks in FY23, given the hardening of rates in the capital markets.’
It stated the shift in the NBFCs' funding mix in FY23 will be driven by a rise in the proportion of short-term funding by way of commercial papers and debenture funding getting replaced by bank funding to a certain extent. A huge quantum of borrowings to be raised by large NBFCs would lead to a further increase in the banks' exposure to the sector, and small NBFCs thus could face crowding out.
It further said with the rise in interest rates, following a 90 basis points (bps) increase in repo rate by RBI in two tranches, NBFCs would see a faster increase in the incremental funding cost than that for banks on account of their institutional funding. It noted around one-third of the NBFCs' borrowings would come up for refinancing in FY23. Furthermore, bank funding on the NBFC balance sheet is mostly floating in nature and would also witness upward repricing.
