Projected Borrowings: NBFC borrowings are expected to rise at a 13% Compound Annual Growth Rate (CAGR), reaching $750 billion by FY27.
Funding Shift: The growth 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).
Market Instruments' Share: By FY27, market-based instruments are expected to account for 64% of total NBFC borrowings, a significant jump from 43% in FY24. This reflects a gradual reduction in bank credit, which currently stands at 42%.
ECBs are projected to grow at a 60% CAGR, exceeding $120 billion.
NCDs are set to expand at around a 25% CAGR, exceeding $330 billion.
Layer-wise Shift:
Upper-layer NBFCs (NBFC-ULs), backed by strong credit ratings, are increasingly tapping global debt markets, with 9 out of 15 expanding their ECB share between FY22 and FY25.
Middle-layer NBFCs (NBFC-MLs) are turning to NCDs due to their higher yields and flexible maturities, with 14 out of 16 showing growth in their NCD borrowings during the same period.
Catalysts for Diversification:
A supportive regulatory environment, particularly the RBI's scale-based regulations, has been a key catalyst.
The inclusion of Indian bonds in global indices and the rise of SEBI-regulated online bond platforms have further deepened the Indian NCD market.
Impact: This shift is expected to strengthen liquidity resilience, reduce systemic risk across the sector, and lead to a more balanced model where liability quality is as important as balance-sheet growth. The next phase of growth will be driven by how intelligently NBFCs fund themselves.