Mumbai: Corporate India is increasingly tapping non-banking channels to meet its funding requirements, with nearly half of the total resources raised in FY25 coming from equity markets, bonds, and loans from non-banking financial companies (NBFCs), Reserve Bank of India (RBI) data showed.
The total flow of financial resources to the corporate sector rose to Rs 35 lakh crore in FY25, marking a modest 3% increase over the previous year. However, the composition of this funding reflects a shift away from traditional bank credit, signalling a broader economic slowdown. Of the Rs 35 lakh crore raised, Rs 17.1 lakh crore — or nearly 49% —came from non-bank channels such as corporate bonds, NBFC loans, equity issuances and foreign direct investment.
By contrast, demand for bank credit declined 14% to Rs 17.9 lakh crore. Bankers attribute this shift to the strong performance of equity markets, which encouraged companies to raise capital through share issuances rather than debt.
Non-financial corporates raised Rs 3.8 lakh crore via equity in FY25, up 188% over the previous year. “The larger established companies prefer to use conventional channels where banks are the main touch point while IPOs are largely used by start-ups or first-time listing of companies,” said Madan Sabnavis, chief economist, Bank of Baroda. He added that the slowdown in bank credit may also stem from cautious lending towards NBFCs and unsecured retail segments and high base effect from FY24 when bank credit surged 20%.
Central bank data also shows that NBFCs and financial institutions ramped up lending to corporates, disbursing Rs 6.1 lakh crore, up 20%. Borrowings through corporate bonds and commercial papers by non-bank entities rose 15% to Rs 2.1 lakh crore.
SIGNS OF MATURITY
Gaura Sengupta, economist at IDFC First Bank, noted that as economies mature, funding sources tend to diversify. “In developed markets like Europe, bank credit remains dominant, whereas in the US, the corporate bond market plays a larger role,” she said.
Another factor contributing to the decline in bank credit is the increased use of internal accruals for business expansion, as pointed out by RBI governor Sanjay Malhotra in the August policy.
“Profitability of large corporates has increased, their internal resources have become an important source for business expansion,” he stated.
Despite the slowdown in bank lending, Governor Malhotra emphasised that the overall flow of financial resources to the commercial sector has increased, if the flow of funds from non-bank sources is included. To stimulate credit demand,RBI has eased policy rates by 100 basis points since February — after a two-year pause — and ensured ample liquidity in the banking system to facilitate smooth transmission of rates to borrowers.
The total flow of financial resources to the corporate sector rose to Rs 35 lakh crore in FY25, marking a modest 3% increase over the previous year. However, the composition of this funding reflects a shift away from traditional bank credit, signalling a broader economic slowdown. Of the Rs 35 lakh crore raised, Rs 17.1 lakh crore — or nearly 49% —came from non-bank channels such as corporate bonds, NBFC loans, equity issuances and foreign direct investment.
By contrast, demand for bank credit declined 14% to Rs 17.9 lakh crore. Bankers attribute this shift to the strong performance of equity markets, which encouraged companies to raise capital through share issuances rather than debt.
Non-financial corporates raised Rs 3.8 lakh crore via equity in FY25, up 188% over the previous year. “The larger established companies prefer to use conventional channels where banks are the main touch point while IPOs are largely used by start-ups or first-time listing of companies,” said Madan Sabnavis, chief economist, Bank of Baroda. He added that the slowdown in bank credit may also stem from cautious lending towards NBFCs and unsecured retail segments and high base effect from FY24 when bank credit surged 20%.
Central bank data also shows that NBFCs and financial institutions ramped up lending to corporates, disbursing Rs 6.1 lakh crore, up 20%. Borrowings through corporate bonds and commercial papers by non-bank entities rose 15% to Rs 2.1 lakh crore.
SIGNS OF MATURITY
Gaura Sengupta, economist at IDFC First Bank, noted that as economies mature, funding sources tend to diversify. “In developed markets like Europe, bank credit remains dominant, whereas in the US, the corporate bond market plays a larger role,” she said.
Another factor contributing to the decline in bank credit is the increased use of internal accruals for business expansion, as pointed out by RBI governor Sanjay Malhotra in the August policy.
“Profitability of large corporates has increased, their internal resources have become an important source for business expansion,” he stated.
Despite the slowdown in bank lending, Governor Malhotra emphasised that the overall flow of financial resources to the commercial sector has increased, if the flow of funds from non-bank sources is included. To stimulate credit demand,RBI has eased policy rates by 100 basis points since February — after a two-year pause — and ensured ample liquidity in the banking system to facilitate smooth transmission of rates to borrowers.
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