India’s Non-Banking Financial Companies (NBFCs) are now shaping a distinct model of financial intermediation. What began as a lending alternative has matured into a comprehensive financial services framework. In doing so, NBFCs are gradually assuming functions beyond credit delivery with insurance partnerships, digital payments, consumer finance platforms, gold loans, and even fintech integrations. The momentum is not incidental but built on sustained performance, demand-led innovation, and sharper segmentation of financial services that conventional banks have been slower to address.
Consistency and Purpose
NBFCs are showing structural growth, not episodic spikes. According to a recent third-party report, NBFCs posted 20% year-on-year credit growth in FY25, far ahead of the 12% clocked by commercial banks. This is not an outlier. Between FY19 and FY24, credit growth through NBFCs sustained a compound annual growth rate (CAGR) of 12%, as highlighted in one of the recent market analyses.
The asset base shows the broader picture. Around the year 2000, NBFCs managed under ₹2 trillion in assets. By the end of FY24, their Assets Under Management (AUM) reached ₹43 trillion, as per one of the market reports. Such scale cannot be explained through lending alone; it is tied to deeper financial inclusion, risk-based pricing models, and a diversified portfolio that adapts faster than traditional banking models.
Filling the Structural Gaps Left by Banks
Retail credit is the decisive differentiator. While banks have historically focused on wholesale lending to corporates, agriculture, and large service sectors, NBFCs have aligned themselves closely with the consumption economy. As of FY24, only 34% of total bank credit went toward retail borrowers. In contrast, NBFCs directed 48% of their credit toward the retail segment as per market reports.
This signals a clear and sustained approach. The NBFC model thrives on underwriting retail borrowers, often from underserved or thin-file categories. They bring first-time borrowers into the system, such as gig workers, micro-entrepreneurs, migrant professionals, and urban-rural households, who might otherwise be excluded by the banking sector’s more conservative credit filters.
Catalysts for Women Entrepreneurship
NBFCs have been playing a role in supporting women entrepreneurs in different parts of India. Several have set up lending programs aimed at women-led micro and small businesses, especially in rural and semi-urban areas. These programs often consider informal sources of income, allow flexible repayment, and offer doorstep services. This makes it easier for women, who may not have access to traditional banking, to participate in economic activity. In many cases, the resulting financial independence supports both the business and the household.
Digitally-Driven Financial Engines
The scale-up in credit distribution has gone hand-in-hand with the adoption of technology. NBFCs are no longer backend players, depending on DSA networks alone. A growing number now operate with digital-first lending platforms, embedded credit solutions, and AI-based risk engines. This has allowed them to make quicker decisions, lower operational costs, and provide a better experience for borrowers, especially in tier 2 and 3 cities.
Consumer tech integrations have also expanded NBFCs’ touchpoints. From embedded finance in online marketplaces to Buy Now, Pay Later models across retail categories, the NBFC presence is often invisible but integral. These are not traditional lender-borrower relationships; they are user journeys supported by contextual credit. This modular approach helps NBFCs stay agile across categories.
Expanding into Multi-Product Financial Solutions
Several NBFCs are building financial ecosystems by partnering across verticals. Loan products are now bundled with insurance, investment offerings, and even savings tools. The intent is not just to disburse loans but to own the entire financial journey of the customer. NBFCs are also innovating around asset classes, vehicle finance, gold-backed loans, real estate financing, SME working capital, and green loans.
This horizontal expansion has placed NBFCs in direct competition with banks on some fronts while also complementing the credit infrastructure on others. Unlike banks, which operate under rigid regulatory and operational norms, NBFCs have the flexibility to test, iterate, and refine financial products at speed.
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Serving Bharat Without Diluting Risk Intelligence
NBFCs have tailored their reach to Bharat, India, beyond its metro and Tier 1 cities. Their distribution frameworks, partner-led models, and ability to assess informal incomes position them better for rural and semi-urban credit. These segments often present higher risk but also higher yield opportunities when assessed correctly.
While critics point to potential asset quality risks, the track record shows measured discipline. NBFCs have strengthened their credit evaluation frameworks post-IL&FS and other sectoral events. Many are now adopting co-lending models with banks, improving underwriting quality while ensuring reach.
NBFCs as Employment and Growth Catalysts
NBFCs are gradually becoming important contributors to employment generation and local economic activity. By extending credit to MSMEs, daily wage workers, logistics operators, and small traders, they support segments that often fall outside the reach of traditional banking. The outcome is visible in areas where access to finance has been limited, through higher business activity and steady job creation.
The sector is also drawing interest from private equity and foreign investors. In some cases, NBFCs are preparing for or entering public markets. This shift is supported by improvements in credit assessment, recovery practices, and governance structures.
NBFCs now do more than provide loans. They influence how credit reaches people and businesses, often using different criteria and distribution models than banks. As their services expand, they are helping make finance more accessible and responsive to local needs.
View Expressed By: Jitendra Tanwar, Managing Director & Founder of Namdev Finvest Pvt Ltd
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