NBFCs’ Strategic Shift in Funding Shows Promising Growth Through Public Deposits and Bond Markets

India’s Non-Banking Financial Companies (NBFCs) are witnessing a transformational change in their funding pattern. According to a recent report, NBFCs’ funding strategy is evolving rapidly as they increasingly tap into public deposits and bond markets to fuel growth and operational stability. This marked shift comes amid a broader effort to reduce dependence on conventional bank borrowings and strengthen their balance sheets.

New Era in NBFCs Funding Strategy

For years, NBFCs heavily relied on bank loans for liquidity. However, rising interest rates, tighter regulations, and changing market dynamics have pushed these institutions to diversify their sources of capital. The new NBFCs funding strategy emphasizes attracting public deposits and leveraging bond markets — a move seen as more resilient and sustainable in the long run.

In the financial year 2024–25, public deposits collected by deposit-taking NBFCs have increased considerably. Meanwhile, several large NBFCs are also accessing capital via Non-Convertible Debentures (NCDs), commercial papers, and other market instruments to manage liabilities effectively.

Why the Shift? Regulatory and Economic Factors

This change in NBFCs funding strategy is not just reactive but strategic. Recent Reserve Bank of India (RBI) guidelines have pushed NBFCs to maintain a stronger asset-liability profile. The growing preference for bond issuance helps them spread maturities over time, thereby managing liquidity risks better.

In addition, with Indian households and institutions increasingly looking for higher-yield investment options, NBFCs issuing bonds and offering deposit schemes are able to tap into new investor bases. This also allows them to raise funds at more competitive rates compared to bank loans.

Market Confidence and Public Participation Rising

The market response to this change has been largely positive. Investors have shown growing confidence in top-rated NBFCs. Public deposit schemes are gaining popularity due to attractive interest rates and strong reputational trust built by leading players.

This proactive NBFCs funding strategy is also helping smaller NBFCs build credibility and improve their ratings, making it easier for them to access market-based capital.

Risks and Outlook: What Lies Ahead?

While the new NBFCs funding strategy presents growth opportunities, experts caution that this shift requires better risk management practices and transparent disclosures. Exposure to interest rate fluctuations and tighter scrutiny from credit rating agencies are inevitable in capital markets.

Nonetheless, the long-term outlook for NBFCs remains promising as they move toward a more diversified and investor-friendly funding model. If managed prudently, this strategy could help NBFCs play a more vital role in India’s financial inclusion and economic growth.

Industry Voices on NBFCs Funding Strategy

Leading industry analysts believe that this structural change is a sign of maturity. “NBFCs today are not just borrowers but evolving into issuers in their own right, creating a deeper bond market ecosystem,” said a financial sector expert. This marks a significant leap for India’s financial sector, traditionally dominated by banks and government institutions.

Conclusion: A Positive Turn for NBFCs

The emerging NBFCs funding strategy signals a positive future for the sector. With increasing reliance on public deposits and bond markets, NBFCs are not only becoming more resilient but are also contributing to the development of a broader, more inclusive financial market in India.

This forward-thinking approach could redefine the sector’s role, especially in a rapidly changing economic environment where agility and access to diverse funding are key to sustained growth.