India Ratings and Research (Ind-Ra) has indicated that the cost of funds for non-banking finance companies (NBFCs) and housing finance companies (HFCs) may rise marginally over the medium term. This projection is influenced by geopolitical tensions and uncertain macroeconomic conditions, which are causing wider spreads in bond markets. Despite recent policy rate cuts, the agency notes that the transmission of these cuts to bank lending rates has been limited, preventing a meaningful reduction in borrowing costs. Furthermore, competition for deposits among banks and cautious capital markets are expected to maintain upward pressure on funding costs.

Ind-Ra highlights a notable growth in bank lending to NBFCs, which rose by 19.1% in February 2026, compared to 6.4% the previous year. This trend suggests an increasing reliance on banks for funding as capital market activity moderates. Ind-Ra's Director of Financial Institutions, Karan Gupta, emphasized that the incremental cost of borrowings for NBFCs is likely to increase due to the geopolitical landscape and its macroeconomic implications. Additionally, banks are expected to raise their marginal cost of funds-based lending rates (MCLRs) as loan-to-deposit ratios (LDRs) remain elevated, further impacting the cost of borrowing for these financial entities.