**Title:** NBFCs Shift Focus to Public Deposits and Bonds for Capital
**Meta Description:** India’s NBFCs are increasingly relying on public deposits and domestic bonds for capital, outpacing traditional banks in lending growth.
**URL Slug:** nbfc-capital-raising-public-deposits-bonds
**Headline:** India’s Non-Banking Financial Companies Embrace New Capital Strategies
India’s Non-Banking Financial Companies (NBFCs) are undergoing a significant transformation in their funding strategies, moving away from conventional bank borrowings. A recent report by Deven Choksey Research highlights that these financial institutions are increasingly turning to public deposits and domestic bond markets to raise substantial capital.
NBFCs, which provide financial services akin to those of banks but do not operate as commercial schedule banks, are regulated by the Reserve Bank of India (RBI). Unlike traditional banks, they do not accept standard deposits but offer loans, investments, and various financial products. In the financial year 2025, NBFCs experienced a remarkable surge, outpacing traditional banks in lending activities. They achieved a credit growth of 20%, significantly higher than the 12% growth recorded in the banking sector. A substantial portion of this growth was driven by the rising demand for gold loans, pushing the total loans disbursed by NBFCs to ₹24.5 trillion.
The overall size of the NBFC sector has also expanded considerably, with total assets increasing by 20% year-on-year (YoY) to reach ₹28.2 trillion. Borrowings rose by 22% YoY to ₹19.9 trillion, indicating that NBFCs are actively seeking funds to support their growth trajectory. However, profitability across the sector has shown mixed results. While larger listed NBFCs reported an 8% increase in profits, the microfinance institutions (MFI) segment faced a sharp 95% decline in profits due to heightened stress and increased provisioning.
The report further noted that NBFCs have become slightly more efficient in FY25, with their cost-to-income ratio improving from 36.7% in FY24 to 36.2%. Additionally, asset quality has seen a slight improvement, with Gross Non-Performing Assets (NPA) decreasing by 10 basis points. However, the MFI segment reported an uptick in loan defaults amid ongoing financial stress.
In recent years, NBFCs have emerged as crucial lenders to Micro, Small, and Medium Enterprises (MSMEs). From fiscal 2021 to 2024, they recorded a robust 32% compound annual growth rate (CAGR) in credit to this segment, surpassing the growth rates of private banks (20.9%) and public sector banks (10.4%). The report emphasizes that NBFCs dominate the micro loan against property (LAP) market, particularly for loans below ₹1 million, holding a 45% market share compared to private banks’ 25%.
In conclusion, as India’s NBFC sector continues to evolve, its shift towards public deposits and bond markets signifies a strategic adaptation to meet growing capital demands and enhance lending capabilities.
**FAQ:**
**What are NBFCs and how do they differ from traditional banks?**
NBFCs provide financial services similar to banks but do not accept traditional deposits. They are regulated by the RBI and focus on loans, investments, and other financial products.
