As Non-Banking Financial Companies (NBFCs) navigate the financial landscape, managing borrowing expenses stands pivotal for sustainable growth. Here's a breakdown of actionable steps to curtail these costs without compromising operations.
Diversify Funding Sources
Relying solely on one borrowing avenue can be risky. Exploring diverse funding sources offers resilience. From institutional investors to retail bonds, tapping into various streams can mitigate dependency on a single source. Moreover, it can provide more favorable terms and conditions, reducing overall borrowing costs.
Rashesh Shah, the Chairman and CEO of Edelweiss Group has emphasized the importance of diversifying funding sources and optimizing capital structures for NBFCs to lower borrowing costs. Strategies like building strong relationships with lenders, maintaining a healthy credit profile, and leveraging technology to streamline operations as crucial steps for reducing their borrowing expenses.
Strengthen Credit Ratings
A robust credit rating serves as a financial passport, granting access to lower borrowing costs. Focusing on sound financial practices, timely repayments, and prudent risk management can enhance creditworthiness. This, in turn, attracts lenders with more favorable terms, ultimately reducing borrowing expenses.
For instance, Abhay Bhutada, MD of Poonawalla Fincorp, highlights the importance of AA+ rating from AAA in long-term ratings.It helps them to build a strong foundation for a long-term sustainable leadership position in the industry. The rating upgrade helps strengthen the liability franchise, optimise borrowing cost, and accelerate the growth journey.
Optimize Capital Structure
Balancing debt and equity optimally can significantly impact borrowing costs. Maintaining an equilibrium between the two minimizes financial risk and showcases stability to lenders. Striking the right mix can lower the cost of capital, subsequently reducing borrowing expenses.
Embrace Technological Advancements
Harnessing technology isn't just about modernizing operations; it's about cost efficiency. Adopting fintech solutions streamlines processes, reducing operational costs. From automated workflows to AI-driven analytics, these advancements enable NBFCs to operate leaner, translating to reduced borrowing expenses.
Prudent Risk Management
Mitigating risk isn't just about compliance; it's about cost containment. Implementing robust risk management practices minimizes the probability of defaults and losses. This instills confidence in lenders, enabling negotiations for better borrowing terms.
Foster Long-Term Relationships
Building enduring relationships with lenders is more than transactional; it's strategic. Establishing trust and reliability can lead to more favorable borrowing terms. Consistency in communication and transparent dealings can pave the way for reduced borrowing expenses in the long run.
Continual Review and Adaptation
The financial landscape is dynamic. Continually reviewing borrowing strategies and adapting to market shifts is imperative. Being proactive rather than reactive allows NBFCs to foresee potential cost-saving opportunities and adapt swiftly, curbing unnecessary borrowing expenses.
In a Nutshell
For NBFCs, minimizing borrowing expenses is more than a financial tactic; it's a strategic imperative. By diversifying funding sources, enhancing credit ratings, optimizing capital structure, embracing technology, practicing prudent risk management, nurturing relationships, and staying adaptable, these institutions can pave the way for sustainable growth while trimming down unnecessary borrowing costs.
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