lipped from: https://www.thehindubusinessline.com/specials/current-account/its-the-non-banks-time-to-shine/article70422865.ece
Banks are no longer the default option for companies seeking credit on quick, easy and generous terms
Sanjay Malhotra, Governor, Reserve Bank of India | Photo Credit: KUNAL PATIL
Credit sourcing by India’s industry, trade and commerce is undergoing a sea change. This development comes in the backdrop of the country’s GDP growth averaging about 8 per cent in the last 3-4 years.
Non-traditional sources of funding are increasingly fuelling this growth. And this was brought out by RBI Governor Sanjay Malhotra in his August bi-monthly monetary policy statement.
He noted that while the flow of bank credit during FY25 reduced, the flow from non-bank sources more than made up for this decrease, and the trend continues in FY26 as well.
The flow of “non-food” bank credit (excludes credit provided to the Food Corporation of India for procurement) during FY25 reduced by about ₹3.4 lakh crore — from ₹21.4 lakh crore to about ₹18 lakh crore.
Poonam Gupta, Deputy Governor, RBI | Photo Credit: cueapi
However, the total flow of resources from non-banks (including domestic and foreign sources) increased by ₹4.3 lakh crore — from ₹12.5 lakh crore in FY24 to ₹16.8 lakh crore in FY25.
In the subsequent two bi-monthly monetary policy reviews (October and December), the governor highlighted this evolving phenomenon, in a clear indication that the commercial sector’s borrowing pattern is undergoing a change.
So, bankers need to sit up and take note of this development. In a rising economy, which clocked 8 per cent growth in the first half of FY26 and expects its GDP to touch about $7 trillion by 2030, from about $4 trillion now, non-bank sources of financing are beginning to play a bigger part, offering some serious competition to banks.
Non-bank sources of financing include commercial papers, corporate bonds, private equity, venture capital, credit from non-banking financial companies (NBFCs), external commercial borrowings (ECBs), and foreign direct investments (FDI).
The commercial (non-priority) sector includes segments such as industry, services, agriculture and allied activities, and personal loans.
Challa Sreenivasulu Setty, Chairman, State Bank of India | Photo Credit: cueapi
Amplifying this development, RBI Deputy Governor Poonam Gupta, in a speech last month, noted that the Indian financial system has traditionally been bank-dominated. Therefore, quite reasonably, bank credit growth has thus far been viewed as a key parameter to assess the flow of financial resources to the commercial sector and its implications for the growth outlook of the economy.
Spectrum of fund flow
However, given the rising role of non-bank sources of finance, it has become essential to assess the broader spectrum of flow of financial resources to the commercial sector from banks and non-bank sources (including domestic and foreign), she said.
In this regard, Gupta stressed that during 2024-25, just a little less than half (48.7 per cent) of the total resources flowing to the commercial sector were mobilised from non-bank sources.
“Given the primacy of this information in assessing overall resource flow to economic activity, starting this month, we have started disseminating two tables — namely, ‘Flow of financial resources to commercial sector in India’, and ‘Outstanding credit to commercial sector in India’ in the RBI bulletin. These data will be updated and released in the RBI bulletin on a monthly frequency from now on,” she said.
Sunita Ramnathkar, President, IMC Chamber of Commerce and Industry
According to the RBI’s latest monthly bulletin, during FY26 (up to October 31), total flow of financial resources to the commercial sector increased to ₹20.1 lakh crore from ₹16.2 lakh crore a year ago.
Within this, flow of funds from non-bank sources to the commercial sector showed a marked increase (of 39 per cent year-on-year) to ₹8,95,813 crore in the financial year up to October 31.
Flow of funds from banks to the commercial sector was up 13 per cent y-o-y to ₹11,12,687 crore.
As on October 31, the total outstanding credit to the commercial sector rose by 13 per cent from 12 per cent last year. Within this, non-bank sources registered a growth of 17.2 per cent compared to 12.4 per cent a year ago, and bank credit growth slowed a tad to 11.1 per cent, compared to 11.7 per cent a year ago.
Funding strategy
Challa Sreenivasulu Setty, Chairman, State Bank of India, said: “Earlier, the whole household savings used to come to the banks. Now, savings diversification via insurance, mutual funds, or pension funds is happening. So, the corporates also want to have access to those sources of funding.
“This is a good development. But I personally believe that it is not adequate. It still has to go up. But banks like SBI will not be impacted significantly by the increase in non-bank sources of funding as we are the most preferred corporate banker in the country today.”
Sunita Ramnathkar, President, IMC Chamber of Commerce and Industry, observed that Indian companies are increasingly tapping non-bank sources of capital — including bonds, NBFC credit, venture capital, private equity, ECBs and FDI — as a critical component of their funding strategy.
“This shift is driven by several structural factors. First, India’s rapid economic expansion and formalisation have sharply increased corporate financing needs, while banks continue to face exposure limits, high-risk weighting on certain sectors, and tighter post-NPA (non-performing asset) lending norms.
“As companies pursue asset-light, technology-led and high-growth models, they find that non-bank channels offer faster execution, higher ticket sizes, and capital aligned with long-term growth rather than short-term debt servicing,” she said.
As per SEBI data, in 2024-25, corporate bond issuances reached a new milestone, with companies collectively raising about ₹9.9 lakh crore, a 16.1 per cent increase over the previous year. Further, investments made by alternative investment funds (AIFs), including Category I AIFs (such as venture capital funds, infrastructure funds, and special situation funds), Category II AIFs and Category IIIAIFs, grew about 32 per cent y-o-y to reach ₹5,38,161 crore as at March-end 2025.
Ramnathkar said this data reflects robust preference for non-bank capital despite global headwinds.
“There is also a clear regulatory nudge toward diversification of corporate funding. The RBI and SEBI have pushed companies to move beyond bank-led financing by deepening the corporate bond market, introducing the large exposure framework, enhancing NBFC supervision, and liberalising norms for ECBs and FDI.
“Budget 2024–25 further encouraged bond issuance through enhancements to the Credit Guarantee Scheme, while allowing greater institutional participation. These reforms have strengthened India’s non-bank financial ecosystem and reduced over-reliance on the banking system — an objective the RBI has highlighted repeatedly in its financial stability reports,” she said.
Bumping up bank credit
Meanwhile, the RBI seems to have done banks a good turn in the wake of non-bank sources of finance gaining prominence.
With the share of credit from the banking system to large borrowers reducing significantly since the introduction of the ‘Guidelines on enhancing credit supply for large borrowers through market mechanism’ in 2016 and bank balance sheets becoming more resilient, the RBI has decided to withdraw the guidelines from April 1, 2026. This move could help banks step up credit to India Inc.
The guidelines disincentivised large and highly leveraged borrowers for their incremental funding from the banking system beyond a threshold, as also encouraged them to explore market-based resources for meeting their incremental financing needs.
Be it traditional or non-traditional sources of financing, India will need them all to achieve the milestone of becoming a $7 trillion economy by 2030.
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Published on December 22, 2025
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