NBFCs face higher borrowing costs, slowing profitability, say analysts

Bank lending to NBFCs has grown by 44% , year on year, from Rs 3.4 trn as of August 2017 to Rs 4.9 trn as of August this year

The Reserve Bank of India (RBI) last week announced it would review asset-liability guidelines for non-banking financial companies (NBFCs) because of their rising cost of funding.

RBI Deputy Governor Viral Acharya said over-borrowing through commercial paper (CP) over the past few years and an asset-liability mismatch had led to a “maturity rat race” in the short-term debt market. Concerns surrounding the asset-liability mismatch (ALM) at NBFCs, or raising finance from the short-term debt market while lending to long-term customers or projects, have forced the RBI to step in and implement a correction, say analysts.

“CPs are short-tenure funds and are