STRATEGY, FUNDING, AND PERFORMANCE IN THE INDIAN NBFC SECTOR: A PANEL ANALYSIS OF PORTFOLIO CONCENTRATION, FUNDING-COST MEDIATION, AND THE SCALE-BASED REGULATION REGIME

Abstract

This dissertation examines the relationship between portfolio concentration, funding cost, and profitability in the Indian Non-Banking Financial Company (NBFC) sector across FY2014–FY2024, using a hand-constructed firm-year panel of 19 firms and 209 firm-year observations. The empirical work integrates directed panel regression, Baron-Kenny mediation analysis, crisis-interaction estimation with an embedded longitudinal case study of Reliance Commercial Finance, structural-break testing under the Reserve Bank of India's Scale-Based Regulation regime, and unsupervised K-means and hierarchical trajectory clustering into a unified framework that I term the Strategy → Funding → Performance (SFP) framework. Six directed research questions yield five substantive empirical findings. First, the HHI–profitability relationship exhibits a statistically significant inverted-U on shareholder returns (β(HHI) = +0.293, p = 0.002; β(HHI²) = −0.197, p = 0.008), with an empirical turning point at HHI ≈ 7,449 — coinciding almost exactly with the Specialised-Monoline regulatory boundary at HHI = 7,500. Second, the Cost of Funds → ROA elasticity is the dominant single profitability lever in the panel (β = −0.5149, p = 0.013), and funding cost mediates the HHI–ROA relationship through a competitive-masking equilibrium in which a positive direct strategy effect (+0.0176) and a negative indirect funding-cost effect (−0.0116) approximately offset, producing a near-zero aggregate total effect. Third, crisis stress unmasks the equilibrium: the CoF → ROA elasticity amplifies by 74% under ILFS and COVID windows, and the Reliance Commercial Finance failure trajectory matches the predicted FY18→FY19 ROA decrement within 20 basis points. Fourth, the Scale-Based Regulation regime has produced an 89-bps post-FY23 Cost of Funds compression on Upper-Layer firms and a 521-HHI-point post-SBR diversification response, but no comparable benefit accrues to the Middle-Layer cohort despite its structurally larger crisis-period vulnerability. Fifth, unsupervised trajectory clustering identifies four coherent strategic archetypes — Productive Concentration, Diversified Mainstream, Monoline Specialists, and Distress Trajectory — that independently validate every major directed-regression finding of the empirical chapters. The dissertation contributes the competitive-masking concept as a structural property of financial-intermediary equilibria, the trajectory-clustering methodology as a transferable firm-level taxonomy technique, and the Vulnerability-Weighted Supervisory Scoring (VWSS) framework as a directly actionable refinement of the SBR architecture that would have ex-ante identified both Cluster 4 distress trajectories in the panel twelve to twenty-four months before resolution-process triggers materialised.