NBFCs and Gold Loans in India
How NBFCs Raise Money
Without deposits, NBFCs borrow from banks, issue bonds and commercial paper, and sell loans, making them sensitive to market conditions.
NBFCs need to find money to lend.
Bank loans
Banks lend to NBFCs, which then lend onward to customers.
Bonds and paper
NBFCs issue debentures and commercial paper to mutual funds and other investors.
Securitisation
They can bundle loans and sell them to investors.
Vulnerability
If investors lose confidence, funding can dry up, so NBFCs depend on stable markets.
A funding squeeze
When mutual funds stop buying NBFC paper, an NBFC struggles to roll over its debt.
Assuming NBFCs have unlimited cash
They rely on the market.
Key takeaways
- NBFCs borrow from banks and markets.
- Securitisation sells loans.
- They depend on investor confidence.
- Funding squeezes hurt.
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