BFSI Summit 2026: 'Fund diversification lot harder for smaller NBFCs'

Industry leaders say smaller NBFCs face limited funding access due to lower credit ratings, while larger lenders benefit from diversified funding sources and faster growth

Smaller non-banking financial companies (NBFCs) face funding limits due to lower ratings and widening growth gaps, industry leaders said on Monday at the Business Standard BFSI Summit 2026 in Mumbai. 

 

During a panel discussion titled Is the NBFC advantage over?, moderated by Manojit Saha, Hitesh Sethia, managing director (MD) and chief executive officer (CEO) of Jio Financial Services (JFS), Jairam Sridharan, MD and CEO of Piramal Finance, Raul Rebello, MD and CEO of Mahindra Finance, and Umesh Revankar, executive vice-chairman of Shriram Finance discussed the sector’s role and the challenges faced in accessing funds.

 

From discussing rating disadvantages, to shrinking advantages with respect to distribution, industry leaders also talked about gold loans as a good entry point for new customers, the potential impact of the West Asia conflict on collections.

 

 

Jairam Sridharan, MD & CEO, Piramal Finance said, “Funding diversification is a lot harder for smaller companies. For larger companies, you just have to make a choice on which source of funds you want to tap into.” 

 

He added, “Banks are of course one source of funds, capital markets, local or domestic debt capital markets, international markets for debt, both on the syndication side as well as on the bond side, multilateral agencies, and securitisation markets.” 

 

Sridharan said it is the rating that drives fund sourcing and explained that if an NBFC is rated AA or better, then the company has access to a lot of markets to raise funds. 

 

“But a vast majority of NBFCs… are rated A and below, and there the access to funds is limited to banks and some governmental institutions,” he explained. 

 

Sridharan added that the sector’s share in lending has been broadly in the same range for four decades. 

 

“NBFCs have been roughly 25 per cent of all lending; the other 75 per cent being banks. That sometimes goes up to 30 per cent, sometimes it goes down to 20 per cent. It has never actually gone too far away from that range. Today, we are maybe a little bit on the higher side, maybe at 26-27 per cent. But really, NBFCs have been there for a long time,” he said. 

 

Rumours of the industry’s death are vastly exaggerated, he added. 

 

Comparing the advantages that NBFCs enjoy when compared with banks, Raul Rebello, MD & CEO, Mahindra Finance said that when it comes to acquisitions, NBFCs have placed themselves in rural areas, where customers’ economic viability far exceeded their document quality.  

 

But he added that this advantage was declining as public and private sector banks opened new branches in these areas.

 

“Advantage on pure distribution, I think, is going away a little,” Rebello said. He added that where it exists is in specialised finance categories.  

 

While citing the example of auto finance for the industry in a specialised finance category he said, “In auto finance, NBFCs have embedded themselves even into the dealer ecosystem. Right there, it’s much more nuanced, and I think the advantage still holds.” 

 

“With NBFCs, banks have been able to lean on a lot of alternative data and kind of create some of the gaps which existed in the past,” Rebello added. 

 

On collections, Rebello believes that the sector has an edge over banks as the sector is more embedded into the micro markets and it understands unseasonal variations. 

 

While discussing the NBFC sector getting interest from foreign capital, Umesh Revankar, executive vice chairman, Shriram Finance said the sector has been playing a complementary role and continues to play a contemporary role as the country expands and people harbour ambitions and aspirations. 

 

“Today, NBFCs in rural areas are able to customise and give services that are suited to the customer… that makes OUR role very important in the Indian financial system,” Revankar said. 

 

Customisation will continue to remain, he said, adding that foreign investors will look into this advantage since they chase high growth and also look for better margins so that their earnings or their potential investments make better returns.

 

Echoing Revankar, Hitesh Sethia, MD & CEO, Jio Financial Services said, “Firstly, foreign capital is looking for high growth. That’s obvious, and they are looking for something where structural demand can be unlocked. Clearly, the financial services sector and within it, a non-bank sector presents that opportunity for regulated financial institutions world over.”

 

Piramal Finance’s Sridharan said rating is the big driver of success. 

 

“If you are AA rated or better, you have access to a lot of these markets. But a vast majority of NBFCs are not. They are rated A and below, and there the access to funds is limited to banks and some government institutions, let us say NHB (National Housing Bank) or some others, which are very use case specific. Ratings are going to be capped for the smaller NBFCs, and that is going to severely limit their ability to participate in a lot of the other sources.” 

 

He explained that this is why the upper layer NBFCs grow faster than middle and lower layer NBFCs.

 

Gold loans are attracting attention as borrowers are looking for ways to reduce their borrowing costs, JFS’ Sethia said, adding that there was a shift from personal loans towards gold-backed loans. JFS is watching the gold loan segment, but has no immediate plans to enter it, he said. 

 

“We are seeing other players rush into that area, and there is a migration from what we understand of personal loans to gold loans, which probably is good for the system,” Sethia added. 

 

Mahindra Finance’s Rebello added that gold loans serve as a good entry point for rural and semi-urban areas and said that it has become the second largest category currently. 

 

“I must mention that gold loan serves as a good entry point for customers whose assets are locked up in either land or gold. We all know that rural, semi-urban, self-employed folks have volatile income and why we should take comfort is that gold loan delinquencies are low.” Rebello explained.

 

One shouldn’t attribute delay to default since these customer segments have unseasonal and infrequent income sources, hence, gold loan as a category is important, he added. 

 

Sridharan said lending growth remained strong for both banks and NBFCs despite several headwinds. However, he warned that the prolonged conflict in West Asia and higher oil prices could weigh on the economy if the situation continued. “The longer this thing stretches, the harder it gets for the economy,” he said, adding that current growth rates should not be taken for granted if tensions remain elevated.

 

Rebello said rural demand had outpaced urban demand across vehicle-financing categories in the first half of the year. However, he said the full-year outlook remained uncertain due to risks such as El Niño and drought. “It’s too early to call the full year,” he said. 

 

Meanwhile, Shriram Finance’s Revankar said asset-quality pressures could emerge temporarily in regions where agricultural income was affected, but he did not see a serious, widespread challenge.