Non-bank funding rose as bank credit slowed in FY25: RBI Bulletin

Non-bank sources including NBFCs, equity issuances and short-term external credit offset moderation in bank lending, raising overall funding flows to the commercial sector

Bank credit expansion moderated during 2024-25 (FY25), but non-bank sources, both domestic and foreign, played a key role in bridging the funding gap for India’s commercial sector, according to a research paper published in the Reserve Bank of India (RBI) Bulletin.

 

The increase in funding from non-bank sources was largely driven by equity issuances amid buoyancy in the domestic equity market, credit extended by non-banking financial companies (NBFCs), and a rebound in short-term external credit.

 

Over the past three years, the commercial sector has consistently accessed financial markets, showing a marked upward trend in its contribution. Reflecting this momentum, resource mobilisation through equity issuances by non-financial entities saw a sharp increase in FY25. This growth was primarily driven by a surge in initial public offering and follow-on public offer activity, supported by rising retail investor participation and favourable equity valuations in the post-pandemic market environment. 

 

The automotive, consumer services, and telecommunications sectors contributed the most to equity-based fund mobilisation during the year, particularly through public and rights issues.

 

According to the paper, flows from non-bank domestic sources rose by ₹3.7 trillion during FY25, mainly due to a rise in equity issuances amid buoyancy in the domestic equity market and an increase in credit by NBFCs. Flows from non-bank foreign sources increased by ₹80,000 crore during the same period, primarily reflecting a rise in short-term credit from abroad as India’s merchandise imports rebounded.

 

Among the major non-bank credit sources, NBFCs remained dominant. Industry and retail sectors received a larger share of NBFCs’ credit, with the power sector accounting for the bulk of credit to industries at the end of March 2024.

 

“In FY25, although the flow of credit from banks to the commercial sector moderated, flows from non-bank sources more than offset the moderation in bank credit, resulting in a rise in flows to this sector. The moderation in bank credit flow in FY25 may be mainly attributable to a slowdown in credit to targeted segments, following an increase in risk weights on unsecured credit in November 2023 aimed at strengthening financial stability,” the research paper observed.

 

Outstanding credit from non-bank sources rose to ₹88.9 trillion, 26.9 per cent of gross domestic product (GDP), from ₹77.6 trillion, 25.7 per cent of GDP, at the end of March 2024. Consequently, total outstanding credit from banks and non-bank sources to the commercial sector increased to ₹270.9 trillion at the end of March 2025, from ₹241.7 trillion at the end of March 2024.

 

Regarding external sources of funding, foreign direct investment (FDI) continues to play a major role. During FY25, net FDI flows to India increased despite higher repatriation. The services sector accounted for the largest share of gross FDI inflows in 2024, followed by manufacturing, electricity and other energy sectors, retail and wholesale trade, and transport.

 

External commercial borrowings remain an important channel for corporations to access long-term foreign capital. Short-term credit from abroad also increased during FY25 amid a rebound in India’s merchandise imports.