Fund Raising by NBFCs
Every NBFC is, at its heart, a money business. It borrows to lend. Its growth, its interest margin and even its survival depend on one simple question: can it raise the right money, at the right cost, at the right time?
Where Will Your NBFC's Next ₹100 Crore Come From?
Should you borrow from banks or issue bonds? Is a foreign loan cheaper after RBI's new rules? Can you sell part of your loan book to raise cash? When is it time to bring in equity investors or go for an IPO? And what approvals do you need before a single rupee comes in?
These questions matter more than ever in 2026. NBFC credit grew 14.4% in June 2026, so the need for funds keeps rising. Yet the funding market has shifted sharply: NBFC bond issuances fell from ₹2.1 lakh crore in the first half of FY26 to ₹1.4 lakh crore in the second half, while banks' share of NBFC borrowings rose to about 43%. At the same time, securitisation hit a record ₹60,000 crore in April to June 2026, and RBI overhauled its rules for foreign borrowings in February 2026.
This guide explains every major source of funds for NBFCs, the latest RBI and Companies Act rules, real fund-raising stories from leading NBFCs, a step-by-step SOP, and the mistakes to avoid.
Why Fund Raising Is the Lifeline of Every NBFC?
- NBFCs cannot take deposits freely: unlike banks, most NBFCs depend entirely on borrowings and equity to lend.
- Cost of funds decides profit: a difference of even 1% in borrowing cost can change an NBFC's return on equity significantly.
- Mismatch can be fatal: the IL&FS and DHFL crises of 2018-19 showed how funding long-term loans with short-term money can bring down large lenders.
- Capital supports growth: RBI requires a minimum capital adequacy ratio (CRAR) of 15%, so every rupee of growth needs a base of equity.
- Investors watch governance: banks, bond investors and PE funds now check compliance, data quality and asset quality before they commit.
Nine Sources of Funds for NBFCs
- Bank term loans and working capital: Still the largest single source. Crisil expects banks' share of NBFC borrowings to rise to 44-45% in FY27, as bond yields have stayed high. RBI's rollback of higher risk weights on bank loans to NBFCs, effective April 2025, has also made bank lending to NBFCs easier.
- Non-convertible debentures (NCDs) and bonds: Raised through private placement to mutual funds, insurers and banks, or through public issues to retail investors. Muthoot Fincorp opened a ₹700 crore public NCD issue in September 2026 with coupons of 8.56% to 9.25%, rated CRISIL AA.
- Commercial paper: Short-term borrowing, usually up to one year, for working capital. It is cheap in good times but risky if markets freeze, so it should be used carefully and matched with liquid assets.
- External commercial borrowings (ECB): RBI's revised ECB framework, effective 16 February 2026, raised the general limit to $1 billion or 300% of net worth, whichever is higher, set a standard minimum average maturity of three years, and lets pricing follow market conditions. Borrowers regulated by financial sector regulators are exempt from the limits. Currency risk must be hedged carefully.
- Securitisation and direct assignment: NBFCs pool and sell loans to banks and investors to raise cash. In Q1 FY27, securitisation reached a record ₹60,000 crore, up 22%, with NBFCs accounting for over 98%. Gold loans (31%) overtook vehicle loans (26%) as the largest asset class.
- Co-lending: Under RBI's Co-Lending Directions, 2025, effective 1 January 2026, an NBFC can share loans with a bank or another regulated lender, with each keeping at least 10% of every loan on its books. It reduces the NBFC's own funding need while growing its reach.
- Equity: private equity, rights issues, preferential allotment and IPOs: Equity strengthens capital and allows more borrowing. In 2025-26, NBFCs raised equity through every route, from KreditBee's $280 million private round to Tata Capital's record IPO.
- Subordinated debt and perpetual debt: Long-term debt that counts as Tier 2 (or, for perpetual debt, Tier 1) capital within RBI limits. It supports CRAR without diluting shareholders.
- Public deposits: Only deposit-taking NBFCs with specific RBI permission and the required credit rating can accept public deposits. Other NBFCs must not accept them in any form.
Comparing the Main Funding Sources
| Source | Typical cost | Speed | Best for | Key rule to watch |
|---|---|---|---|---|
| Bank term loans | Medium | Medium | Most NBFCs | Covenants, security, bank exposure limits |
| NCDs and bonds | Low to medium (rating-based) | Medium | Rated, larger NBFCs | Companies Act Sec 42 and 71; SEBI rules if listed |
| Commercial paper | Low | Fast | Short-term needs | Rating, tenor up to one year, liquidity buffers |
| ECB | Depends on hedging | Medium | Larger NBFCs | RBI ECB framework, reporting, hedging |
| Securitisation | Medium | Fast | Small and mid NBFCs | Minimum holding and retention rules |
| Co-lending | Shared | Medium | NBFCs with origination strength | 10% minimum retention |
| Equity | Highest (dilution) | Slow | Growth and capital | RBI prior approval for 26%+ stake change |
| Sub-debt | Higher | Medium | Capital support | Tier 2 limits and maturity |
Latest Trends in NBFC Funding
- Back to banks: with bond yields rising above January 2025 levels by March 2026, NBFCs turned to bank loans, which rose by about ₹2.5 lakh crore in the second half of FY26 (Crisil).
- Securitisation boom: stable collections are making loan pools attractive, especially for mid and small NBFCs. Banks bought about 90% of securitised paper in Q1 FY27.
- Easier ECB rules: RBI's February 2026 framework widens access to foreign funds, though rupee volatility may keep issuances muted in the short term.
- Equity is back: large IPOs and growth rounds show strong investor appetite for well-governed NBFCs.
- Growing market: Avendus Capital projects NBFC borrowings to reach $750 billion by FY27, with market instruments taking a larger share.
Real Stories: How Leading NBFCs Raised Money
Tata Capital and HDB Financial: the IPO route
In 2025, HDB Financial Services, HDFC Bank's NBFC arm, raised ₹12,500 crore through its IPO, and Tata Capital followed with an IPO of about ₹15,500 crore, India's largest NBFC listing. Both were driven partly by RBI's requirement for Upper Layer NBFCs to list.
KreditBee: private equity before an IPO
In April 2026, KreditBee raised $280 million at a $1.5 billion valuation, led by Motilal Oswal Alternates, Hornbill Capital and Dragon Funds, as its final private round before a planned IPO.
Kissht: an IPO to strengthen the NBFC arm
OnEMI Technology Solutions (Kissht) launched a ₹926 crore IPO in April-May 2026, with ₹850 crore of fresh capital mainly to strengthen its NBFC subsidiary, Si Creva. It raised about ₹278 crore from anchor investors.
Avanse Financial Services: a rights issue
In January 2026, education lender Avanse raised ₹1,200 crore through a rights issue from existing investors including Warburg Pincus, Kedaara Capital and an affiliate of Mubadala, to grow its loan book and strengthen capital adequacy.
Muthoot Fincorp: reaching retail investors
With its ₹700 crore public NCD issue in September 2026, Muthoot Fincorp showed how NBFCs can tap retail savers directly, offering monthly, annual and cumulative interest options from two to six years.
Step-by-Step SOP for NBFC Fund Raising
- Plan the need: prepare a funding plan based on loan growth, maturities due and liquidity buffers. Decide the amount, tenor and target cost.
- Check headroom: confirm CRAR, leverage, asset-liability gaps and existing covenants. Check the borrowing limit approved by members under Section 180(1)(c).
- Obtain approvals: board approval for every issue; special resolutions where needed under Sections 42 and 71 (private placement of NCDs), Section 62 (rights and preferential issues) or Section 180. For a stake change of 26% or more, obtain RBI's prior approval.
- Rate and structure: obtain a credit rating, appoint a debenture trustee for NCDs, and decide security, covenants and pricing.
- Choose the investor: banks, mutual funds, insurers, PE funds, ECB lenders or retail investors, depending on the instrument.
- Prepare documents: offer documents or information memorandum, loan or subscription agreements, security documents and the private placement offer letter (PAS-4) where applicable.
- Close and file: allot securities, file PAS-3 within 15 days of allotment, MGT-14 for resolutions, CHG-1 for security, and make RBI, ECB and stock exchange filings as applicable.
- Use and monitor: use funds only for approved purposes, track covenants and ratings, and report in RBI returns and to the board.
Important: Fund raising is not only a finance task. It is a regulatory event. A change in control, a breach of covenant or a missed filing can trigger RBI scrutiny, lender penalties or rating action. Build compliance into the plan from day one.
Document Checklist
| Document | Needed for | Notes |
|---|---|---|
| Board and member resolutions | All instruments | Sec 179, 180, 42, 62, 71 as applicable |
| Audited financials and latest results | All instruments | Usually the last three years |
| Credit rating letter | NCDs, CP, public issues | Must be valid on the issue date |
| Information memorandum or offer document | NCDs, equity, IPO | PAS-4 for private placements |
| Debenture trust deed and security documents | Secured NCDs | Charge filed in CHG-1 |
| RBI CoR, CRAR and ALM statements | Banks and investors | Shows regulatory standing |
| RBI prior approval | Stake change of 26% or more | Before the transaction is completed |
| ECB loan agreement and reporting | ECB | Loan Registration Number and returns to RBI |
Things to Consider: Dos and Don'ts
- Diversify: relying on one lender, one instrument or one investor class is the biggest funding risk.
- Mind the mismatch: match the tenor of borrowings with the tenor of loans, and keep a liquidity buffer.
- Protect your rating: a one-notch downgrade can raise borrowing costs and trigger covenant clauses.
- Hedge foreign borrowings: rupee movements can wipe out the cost advantage of an ECB.
- Keep governance clean: investors now check data quality, audit observations and RBI penalties before they invest.
The Major Crux
In one line: In 2026, NBFCs that grow fastest are not the ones that raise the most money, but the ones that raise the right mix: bank loans, bonds, securitisation, co-lending and equity, matched to their loan book, priced well, and backed by clean compliance with RBI and Companies Act rules.
Summary: Key Takeaways
- NBFCs can raise funds through nine main sources, from bank loans to IPOs.
- Banks' share of NBFC borrowings is rising as bond yields stay high.
- Securitisation hit a record ₹60,000 crore in Q1 FY27, led by gold loans.
- RBI's new ECB framework (February 2026) widens access to foreign funds.
- Tata Capital, HDB Financial, KreditBee, Kissht, Avanse and Muthoot Fincorp show every route in action.
- Every issue needs the right approvals, filings and RBI compliance, including prior approval for a 26%+ stake change.
How Panchal S K & Associates Can Help
At Panchal S K & Associates (PSK), we help NBFCs plan, structure and close fund raising, while keeping every step compliant with RBI, MCA and SEBI requirements.
| Service | How PSK supports you |
|---|---|
| Funding strategy | Funding plan, mix of sources, cost and ALM analysis |
| Debt syndication | Bank term loans, NCDs, securitisation and co-lending arrangements |
| Equity fund raising | PE and strategic investors, rights and preferential issues, pre-IPO readiness |
| Project reports and CMA data | Business plans, projections and lender-ready financials |
| Regulatory approvals | RBI prior approval for change in control, ECB compliance and reporting |
| Corporate filings | Resolutions, PAS-3, MGT-14, CHG-1 and other MCA filings |
| Due diligence and audit support | Financial and regulatory due diligence for investors and lenders |
Frequently Asked Questions
What are the main sources of funds for NBFCs?
Bank loans, NCDs and bonds, commercial paper, external commercial borrowings, securitisation, co-lending, equity, subordinated debt and, for permitted NBFCs only, public deposits.
Can all NBFCs accept public deposits?
No. Only deposit-taking NBFCs with RBI permission and the required minimum credit rating can accept public deposits.
Do NBFCs need RBI approval to raise equity?
RBI's prior approval is required for any change in shareholding of 26% or more, or a change in control or management as defined by RBI.
What changed in RBI's ECB rules in 2026?
From 16 February 2026, the general limit rose to $1 billion or 300% of net worth, whichever is higher, the minimum average maturity was standardised at three years, and pricing can follow market conditions.
What is securitisation for an NBFC?
It is the sale or pooling of loans to investors, usually banks, to raise cash immediately. It helps NBFCs, especially smaller ones, diversify funding.
Which filings are needed after raising funds?
Depending on the instrument: PAS-3 within 15 days of allotment, MGT-14 for resolutions, CHG-1 for security creation, ECB reporting to RBI, and stock exchange disclosures for listed NBFCs.
Disclaimer: This article is for general information and educational purposes only and does not constitute legal, tax or investment advice. Regulations change frequently; please check the latest RBI directions, SEBI rules and MCA requirements before acting.