Credit Growth and Asset Quality in Indian NBFCs: Challenges and Opportunities

Abstract

Non-Banking Financial Companies (NBFCs) have become an important part of India’s financial system, especially in areas where traditional banks are not easily accessible. During the financial years 2024 and 2025, NBFCs continued to grow rapidly by providing loans to individuals, small businesses, and underserved communities. In FY25, NBFCs achieved strong overall loan growth of around 20%, with the total lending value reaching nearly Rs 48 trillion. If this pace continues, the sector is expected to cross Rs 74–77 trillion in loan value by FY28.

However, while loan distribution has increased, there has also been a noticeable rise in repayment issues in some specific categories. The microfinance segment, in particular, experienced serious stress, with problem loans rising from 5.9% in FY24 to 15.3% in FY25. This suggests that many borrowers may have taken multiple loans or struggled due to economic pressures. The sector’s credit-to-GDP ratio increased from 16% in FY19 to 26% in FY25, meaning NBFCs now play a much bigger role in financing the country’s economy.

At the same time, the Reserve Bank of India (RBI) has introduced stricter rules to ensure responsible lending practices and protect both lenders and borrowers. These rules include increased oversight, tighter digital lending guidelines, and adjusted risk rules for certain loan types. Rising household debt levels and the growing number of unsecured (no-collateral) loans have also raised concern about future risks.

This study reviews these developments and explains how NBFCs are balancing high growth with credit risks. It uses official financial reports, regulatory documents, and industry research to understand what is driving loan growth and what is causing repayment challenges. The findings show that the sector can continue growing if it strengthens credit checks, expands digital tools responsibly, and diversifies funding sources. Improving risk management, using more accurate borrower data, and maintaining compliance with regulations will be key for NBFCs to sustain growth while ensuring long- term financial stability.