India's non-banking financial companies are poised to maintain a robust growth trajectory of 18 percent despite increasing caution among lenders and rising borrower leverage, according to the latest assessment by Crisil Ratings. The sector's expansion continues unabated, driven by steady retail credit demand across multiple segments.
Selective Lending in High-Risk Segments
Financial institutions are becoming more discerning in their lending practices, particularly in areas where repayment stress is becoming evident. Unsecured MSME loans, which constitute 6 percent of the sector's assets under management, have shown higher delinquency rates due to elevated borrower leverage and overlap with microfinance clients.
As a result, growth in this segment is expected to cool significantly to 13-14 percent, a sharp decline from the impressive 31 percent expansion witnessed over the previous two financial years. NBFCs are adopting a risk-calibrated approach to maintain portfolio quality while pursuing growth.
Projected Asset Growth and Segment Performance
Crisil forecasts that the industry's assets under management will reach Rs 50 lakh crore by FY27, sustained by annual growth of 18-19 percent. This projection comes despite the cautious stance in certain loan categories.
Personal loans, accounting for 11 percent of industry AUM, are expected to accelerate their growth to 22-25 percent, up from 18 percent previously, though still below the 37 percent pace recorded in FY24. The rating agency noted that rationalization of GST rates and benign inflation should support consumption-linked credit across categories.
In the secured lending space, loans against property and secured MSME financing - together comprising 15 percent of NBFC AUM - are set to stabilize at 26-27 percent growth in FY26 and FY27. However, lenders remain cautious about smaller ticket sizes due to early-stage repayment stress appearing in these segments.
Gold Loans Emerge as Strong Performer
The gold loan segment, representing 6 percent of AUM, is positioned to outperform other categories. This strong performance is driven by increasing formalization in the sector, high gold prices, and growing interest from NBFCs in this relatively secure form of lending.
Krishnan Sitaraman, Chief Rating Officer at Crisil, emphasized that NBFCs will exercise due caution on heightened customer leverage while pursuing growth. "NBFCs will adopt risk-calibrated growth, especially in the micro, medium and small enterprises (MSME) and unsecured loan segments," he stated.
Funding Landscape Crucial for Future Growth
The banking system's approach to funding the sector will be a critical determinant of how assets under management scale from current levels, according to Ajit Velonie, Senior Director at Crisil.
"While larger NBFCs have accessed other funding avenues, such as the debt capital market and external commercial borrowings, others have fewer alternatives. Hence, the extent of rebound in bank funding will influence the growth outlook for these NBFCs," Velonie explained.
This comprehensive assessment by Crisil Ratings paints a picture of a sector navigating carefully between growth opportunities and risk management, with different loan segments showing varying performance patterns based on underlying economic factors and borrower behavior.
