Rising Borrowing Costs Loom Over NBFCs Amid Global Uncertainty

India Ratings and Research warns that borrowing costs for non-banking finance companies and housing finance companies may rise amid global uncertainty and limited rate cut transmission by banks. The agency anticipates a gradual shift towards bank funding and notes that geopolitical tensions could widen bond market spreads.

India Ratings and Research (Ind-Ra) has announced that non-banking finance companies (NBFCs) and housing finance companies (HFCs) may encounter higher borrowing costs over the medium term. The rise is attributed to geopolitical tensions, uncertain macroeconomic conditions, and the limited transmission of policy rate cuts by banks.

The agency highlighted that despite recent policy cuts, the weak transmission and competition for deposits will prevent a significant reduction in borrowing costs. Ind-Ra predicts a shift in the funding landscape of NBFCs, with a move towards bank borrowings due to stable pricing and softer bond market activity.

Furthermore, Ind-Ra foresees limited external commercial borrowings due to global uncertainties and currency volatility, while bank lending to NBFCs has notably increased. Karan Gupta of Ind-Ra explains that incremental borrowing costs are likely to rise due to wider spreads and evolving banking lending rates.