NBFCs will keep an eye on the bond market for funds

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Mumbai: After the Reserve Bank of India (RBI) announced stricter norms for non-banking financial companies (NBFCs) and banks with regard to unsecured loans, NBFCs will be forced to look to the bond market to meet their funding requirements, sources in the financial sector say.

As a result of RBI's new norms, it will be a bit difficult for NBFCs to get money from banks.

As of the end of March of the current year, 41.20 percent of the total borrowing of NBFCs from banks is likely to see a decline.

The Reserve Bank has increased the risk weight on loans provided by banks to NBFCs by 25 percent.

The Reserve Bank's decision will require NBFCs to change their business model and reduce dependence on banks for funding, an analyst said.

For NBFCs with good ratings, the bond market will now be the main source of funding. NBFCs can raise funds through short-term commercial papers, but over-reliance on them can lead to asset-liability imbalances.

It is also being expressed that the decision of the Reserve Bank will increase the borrowing cost for NBFCs.

In the current financial year, companies and financial institutions have so far raised Rs 5.31 trillion through bonds, compared to Rs 8.70 trillion raised in the last full financial year.


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