NBFCs Are Quietly Rewriting Their Funding Playbook

A quiet but meaningful shift is underway in how Indian non-banking financial companies (NBFCs) are sourcing funds. So far in 2025, offshore syndicated loans to Indian NBFCs total roughly $3.67 billion, more than double the amount raised across the whole of 2024 (about $1.64 billion). That divergence signals a deliberate strategic tilt toward cheaper and more diverse external funding rather than an isolated trend.

What's driving the pivot to overseas lending?

1. Cheaper short-term global funding: Global short-term benchmarks such as three-month SOFR have eased from recent peaks, making floating-rate syndicated facilities more attractive relative to domestic long-dated bonds that carry higher spreads. Where offshore floating rates remain low, marginal borrowing from international banks becomes financially compelling.

2. A deeper pool of lenders: International banks with capacity to redeploy assets are showing greater comfort with selected Indian NBFC credits. This enlarged syndicate base improves pricing and allows for more flexible covenant structures than many onshore transactions. Last week education loan Avanse Financial Services raises $200 Million through a three year loan led by HSBC and syndicate to as many as 11 banks from countries as diverse as Japan, Taiwan, Singapore and the UAE.

3. Liability diversification and structural benefits: Dollar- or yen-denominated facilities allow balance sheets to reduce concentration in rupee liabilities. In some structures, offshore borrowing can also provide tax or regulatory efficiencies that, when modelled correctly, make the overall cost of funds lower after accounting for hedging and transaction expenses.

Trade-offs that cannot be ignored

Cheaper offshore funding introduces several material risks:

• Currency exposure: A weakening rupee increases the domestic currency burden of foreign debt unless effective hedging is in place. Hedging costs rise sharply in volatile FX environments and must be budgeted into the overall cost of borrowing.
• Refinancing and rollover risk: Syndicated bank facilities often have shorter tenors than many bond issuances. A sudden retrenchment in global liquidity or a shift in bank risk appetite can complicate rollovers and force borrowing at wider spreads.
• Interest-rate sensitivity: Floating-rate facilities are attractive when global short rates are falling. The same facilities become costly if benchmarks such as SOFR reverse direction.
• Regulatory and rating implications: External borrowings attract scrutiny from domestic regulators and rating agencies. A visible increase in external liabilities can influence rating actions, covenants, and investor perception in onshore markets.

Practical approaches emerging from treasury teams

Market participants are adopting pragmatic measures to harvest advantages while containing downside:

• Targeted hedging: Full hedging is seldom the chosen path; hedge ratios are calibrated to asset tenors and the firm's appetite for FX risk. Shorter-tenor assets typically attract higher hedge coverage.
• Asset-liability alignment: Offshore funds are being matched to assets with similar tenors or to assets that generate foreign-currency receipts where possible. When precise matching is not feasible, blended structures and partial hedges are used.
• Layered funding strategy: Offshore syndicated facilities are being added atop, not instead of, domestic bonds and bank lines. This layered approach reduces concentration risk and captures the cheapest marginal funding source.
• Rate protection tools: Caps, collars, and a mix of fixed/floating tranches are being used to protect against adverse rate movements while retaining upside when global rates remain favourable.

Key indicators to monitor

For those tracking credit risk, liquidity or treasury resilience, the following deserve close attention:

• Global short-term rate trajectory (e.g., SOFR): A sustained decline supports the offshore funding case; a reversal flips the advantage quickly.
• Rupee direction and volatility: Accelerated depreciation increases effective rupee cost and drives higher hedging spend.
• International bank risk appetite: Signs of balance-sheet pullback by global banks would tighten supply and widen spreads.
• Regulatory guidance: Any tightening of prudential norms around external borrowings or changes in disclosure expectations will alter funding strategies.

Bottom line

The uptick in overseas borrowing by NBFCs represents an opportunistic but disciplined response to a window of favourable pricing and wider lender participation. When offshore funds are deployed with matched tenors, calibrated hedging, and a diversified liability mix, funding costs can be lowered and balance-sheet resilience improved. However, the same strategy becomes risky if currency and rate moves are underestimated or if the approach is treated as a permanent substitute for robust liability management. In short: the current funding window offers advantage, but only within a framework that prioritises matched cash flows and disciplined risk controls.

Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement.