New Delhi : India Ratings and Research on Thursday said the cost of funds for non-banking finance companies and housing finance companies could rise marginally over the medium term amid geopolitical tensions, uncertain macroeconomic conditions and the limited transmission of policy rate cuts by banks.
India Ratings and Research (Ind-Ra) said that despite recent policy rate cuts, borrowing costs are unlikely to soften meaningfully due to weak transmission, higher deposit competition and cautious capital markets.
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It expects that changes in the funding mix, rather than liquidity stress, will define the sector's dynamics.
In a statement, Ind-Ra said the expectation of a marginal increase in the cost of funds for non-banking finance companies (NBFCs) and housing finance companies (HFCs) over the near-to-medium term arises from wider spreads in bond markets due to geopolitical tensions, uncertain macroeconomic conditions and the limited transmission of policy rate cuts to bank lending rates.
The agency expects a gradual rebalancing of NBFC funding towards bank borrowings, influenced by relative pricing stability and softer bond market activity.
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It expects external commercial borrowings (ECBs) to remain relatively contained in the near term, due to heightened global uncertainties and geopolitical developments, which could lead to volatility in currency and offshore funding costs.
Bank lending to NBFCs grew 19.1 percent in February 2026, sharply up from 6.4 percent a year earlier. Ind-Ra believes this trend reflects both an increasing reliance on banks and a moderation in capital market funding.
"Incremental cost of borrowings for NBFCs is likely to be on an uptick with wider spreads in bond markets due to geopolitical tensions and its impact on macroeconomic conditions, and banks also looking to raise marginal cost of funds-based lending rates (MCLRs) with loan-to-deposit ratios (LDRs) being at elevated levels and banks raising deposit rates in selective maturity buckets," Ind-Ra Director Financial Institutions Karan Gupta said.
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