The Mind-Blowing Rise: NBFCs Outpace Banks

The FY2025 numbers tell a powerful story. NBFCs recorded a stunning 20% year-on-year credit growth, remarkably higher than the 12% clocked by traditional banks. The NBFC sector’s net advances soared to ₹24.5 lakh crore, and the overall balance sheet size ballooned to ₹28.2 lakh crore—both reflecting 20% annual growth. Borrowings also jumped 22% to ₹19.9 lakh crore, underlining their aggressive expansion and role as a key growth engine in Indian finance

The Growth Factor: Retail Credit, MSMEs, and Digital India

• Retail Lending Domination: While banks focus more on wholesale lending, NBFCs now direct 48% of their advances to retail borrowers, addressing the huge demand from first-time borrowers, gig workers, small business owners, and low-credit-history segments. Retail assets accounted for 58% of overall NBFC credit in December 2024, with this segment driving most of the sector’s expansion.

• MSMEs and Tier 2 Opportunities: Over 51% of India’s 63 million registered small businesses are in Tier 2 and smaller cities, making them economic powerhouses. NBFCs have tailored offerings for these regions—local branches, vernacular support, alternative credit assessment methods—plugging the massive ₹20-25 lakh crore funding gap MSMEs face and generating millions of jobs.

• Tech and Financial Inclusion: NBFCs have aggressively adopted technology—mobile-first apps, instant processing, AI-enabled risk detection, and digital sourcing—to reach and serve customers in less-banked areas. Their presence on UPI and social platforms like WhatsApp/Instagram is making formal credit more accessible than ever.

Opportunities in Tier 1 vs Tier 2 Cities

Aspect	Tier ! Cities	Tier 2 Cities
Credit demand	Rising for consumer, housing	Explosive for MSME, micro-loans
Competition	Higher (banks + fintech)	Lower (NBFCs have edge)
Tech adoption	Advanced, digital-first	Surging—great for mobile NBFCs
Borrower profile	Diverse (salaried & businesses)	MSMEs, self-employed, new-to-credit
Key NBFC focus areas	Personal loans, gold, vehicles	MSME funding, financial inclusion
Special opportunity	Consumer finance, fintech ties	Untapped MSME/retail, vernacular services

• Tier 1: Fierce competition, NBFCs innovate on speed, digital onboarding, and niche products (like EV loans, luxury goods).

• Tier 2: Rapid urbanization, economic dynamism, and local insight give NBFCs a first-mover advantage—banking penetration is lower, and the appetite for business and personal loans is high

Future Growth Outlook: NBFCs Defy Gravity

• Projected Credit Growth: While credit growth is expected to moderate, agencies forecast 13–15% annual expansion in FY25 and FY26 (after 17% in previous years).

• Overall Market Size: NBFCs’ total credit is projected to surpass ₹60 trillion by FY2026, up from ₹52 trillion in December 2024.

• Retail Lending: This will continue as NBFCs’ biggest pillar, with 16–18% annual growth, outpacing many sectors of the traditional finance industry.

Key Facts and Figures

• 20%: FY25 YoY credit growth by NBFCs.

• ₹28.2 lakh crore: NBFC sector total balance sheet (FY25).

• 58%: Of NBFC credit is retail/consumer-focused.

• 51%: Of small businesses are in Tier 2 and smaller cities.

• 30%: MSMEs’ contribution to India’s GDP, many funded by NBFCs.

• 110 million+: Jobs supported by MSMEs—many with NBFC lending.

• Projected 13–15%: NBFC annual credit growth, FY25–26.

• ₹60 trillion: Expected NBFC credit market size by FY26

Sector-wise distribution of NBFC assets in India

The sector-wise distribution of NBFC assets (credit portfolio) in India as of the latest fiscal data (FY24) is as follows:

• Infrastructure financing holds the highest share in NBFC credit, accounting for 24% of the overall credit.

• MSME loans come next, constituting about 21% of total NBFC credit.

• Housing finance occupies the third largest share with 16% of NBFC credit.

• Other notable segments include:

  • Personal loans and consumer finance such as gold loans, vehicle loans, and consumer durable loans.

  • Agriculture and allied activities hold a smaller but significant portion.

  • Services and industry collectively also account for a sizable proportion.

Why NBFCs Will Win in India’s Next Decade

• Agility & Localisation: Tailored products and vernacular support unleash real value in underbanked cities.

• Tech-Led Innovation: Mobile apps, UPI integration, and alternative data science power instant, inclusive lending.

• Government Push: Initiatives like PMMY, digital account aggregators, and India Stack support NBFC-led inclusion.

• Vast Untapped Markets: With Tier 2/3/4 cities booming, NBFCs hold the keys to India’s grassroots financial transformation.

“The NBFC model thrives on underwriting retail borrowers—gig workers, micro-entrepreneurs, urban-rural households—who might otherwise be excluded by the banking sector’s more conservative credit filters.”

India’s NBFCs are not just keeping pace—they’re setting the pace, propelling the next wave of financial inclusion, entrepreneurship, and economic dynamism across both mega-cities and ‘Bharat’. The data confirms one thing: the NBFC opportunity in India’s shifting urban landscape is not just large—it’s almost limitless.