Introduction
In a notable shift, Indian companies in FY25 raised a substantial portion of their capital through non-bank routes such as equity markets, corporate bonds, and non-banking financial companies (NBFCs). According to industry data, these channels accounted for nearly half of the total funding needs of corporate India this fiscal year.
The Trend Towards Non-Bank Funding
Traditionally, banks have been the primary source of financing for Indian businesses. However, a combination of tighter lending norms, attractive interest rates in the bond market, and a buoyant equity environment has pushed companies to diversify their funding sources.
Key Drivers of the Shift
Favourable Market Conditions: Robust capital markets and strong investor appetite for debt and equity instruments.
Bank Lending Constraints: Regulatory and risk-based limits on large corporate exposures.
NBFC Growth: Increased participation of NBFCs in niche sectors such as infrastructure finance, renewable energy, and MSMEs.
Cost of Capital: Competitive pricing and faster disbursal from non-bank sources compared to traditional bank loans.
Breakdown of Non-Bank Channels
Equity Issuances: Rights issues, qualified institutional placements (QIPs), and initial public offerings (IPOs) contributed significantly to corporate funding.
Corporate Bonds: Both private placements and public issues saw higher subscription levels, offering companies long-term capital at fixed rates.
NBFC Lending: NBFCs filled credit gaps in sectors under-served by banks, offering customised products.
Implications for the Financial Ecosystem
This diversification of funding sources can help reduce systemic risks and broaden the financial base of Indian corporates. However, it also underscores the need for robust regulation and transparency in non-bank channels.
Outlook for FY26
If current trends continue, non-bank routes may surpass the 50% mark in corporate funding, further reshaping India’s financial landscape.
Conclusion
The FY25 shift signals a maturing capital market and evolving corporate financing preferences in India. By tapping equity, bonds, and NBFCs, companies are diversifying their funding sources, reducing dependency on banks, and potentially lowering their cost of capital.
FAQ Section
Q1. What percentage of Indian companies’ funding came from non-bank routes in FY25?
Nearly half of the total funding requirements of Indian companies in FY25 were met through non-bank sources such as equity, bonds, and NBFCs.
Q2. Why are companies moving away from bank loans?
Companies are seeking competitive interest rates, faster disbursal, and more diversified sources of capital, which non-bank routes can provide.
Q3. Which non-bank routes are most popular?
Equity issuance, corporate bonds, and loans from NBFCs are the leading non-bank channels for corporate funding.
Q4. How does this trend impact banks?
While banks may see slower growth in large corporate lending, they can focus more on retail and SME lending, which are less capital-intensive.
Q5. Will non-bank funding dominate in the future?
If market conditions remain favourable and regulatory frameworks support it, non-bank channels may soon account for more than 50% of corporate funding needs.
Published on : 17th September
Published by : SMITA
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